Aegon AM's Rory Sandilands emphasizes the importance of managing the refinancing process for effective bond management.
The global bond market, valued at an impressive $128 trillion in 2023, is witnessing a significant shift towards climate transition strategies. This shift is being driven by asset owners seeking investment solutions to help them meet their net zero commitments.
One such solution is the Aegon Global Short Dated Climate Transition Fund, a relatively new addition to the market. According to Rory Sandilands, co-manager of the fund, bond stewardship plays a crucial role in achieving net zero goals. The fund, which has half of its money from local authority pension funds, has attracted significant investment from notable pension funds such as the California Public Employees' Retirement System (CalPERS) and the Dutch pension fund ABP.
Bond stewardship, while not a new concept, has gained a higher profile due to its inherent connection to a forward-looking investment process, such as the climate transition approach. Pension funds are investing in climate transition funds like the Aegon Global Short Dated Climate Transition Fund due to their growing popularity and potential to support net zero goals.
Rory Sandilands emphasizes that bondholders can engage directly with companies to transition their business in line with net zero pathways. They can consider how climate risk is reflected in the use of proceeds, structure, and covenants of the bond. A collaborative approach among bondholders, banks, credit rating agencies, regulators, and other investors is also possible.
The Institutional Investors Group on Climate Change (IIGCC) identifies opportunities for bondholders in achieving net zero goals. Bond funds, the second largest category by Assets Under Management (AUM) in the global climate transition universe, following equities, are becoming more popular among asset owners for their potential to support net zero goals.
The investment approach of the Aegon Global Short Dated Climate Transition Fund continues to emphasize bond stewardship. Bondholder stewardship is a long-term endeavour, according to Sandilands, and is integral to a forward-looking investment process, as demonstrated by the climate transition approach.
As more asset owners make net zero commitments, the demand for investment solutions that help them meet these commitments is likely to increase. The profile of engagement in bond stewardship is set to rise as a result, making it an essential tool in the quest for a sustainable future.
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