The fund will be managed by Insight Investment and target emerging market debt investments with potential to generate positive and measurable impact as well as a financial returns
BNY Mellon Investment Management has announced the launch of fund which will invest in emerging market debt investments with the aim to generate positive and measurable social and/or environmental impact alongside financial returns.
The new fund, the Responsible Horizons EM Debt Impact Fund, classifies as an Article 9 under the EU Sustainable Finance Disclosure Regulation (SFDR) and will be managed by Insight Investment, part of the BNY Mellon group.
According the the fund manager, the strategy will focus on identifying securities and issuers expected to have a positive incremental impact in the context of the themes of ‘people, planet and prosperity’, each mapped to the UN Sustainable Development Goals (SDGs) and the EU taxonomy.
Speaking to Impact Investor, lead manager of the fund Simon Cooke explained that the majority of the portfolio will be invested in impact bonds which already meet the needed requirements in terms of transparency.
“We also look at the ESG profile of the issuer itself to make sure that we’re not lending to someone who’s trying to ‘greenwash’ by issuing a green bond,” he said. “At least 50% of the fund will be [invested] in green, social and sustainability bonds, which give you great transparency.”
Cooke added: “Nothing gets in the fund unless we have the conviction it will generate positive impact for people, the planet or prosperity – every investment has to be aligned to one or more of those themes. Importantly, what we are looking at it’s not just alignment to one of the themes – we want to make sure that it’s not misaligned to any of the others.”
For example, a renewable energy company with bad labour policies will not be part of the fund’s portfolio, he explained.
Supply and demand
Emerging markets face the most pressing social and environmental challenges, meaning investors “serious about impact” cannot ignore emerging economies, Cooke said.
The launch of the fund came as a response to demand and supply forces. “We’ve seen a massive increase in investor interest in impact related EM strategies over the past year or two. The scale of the need is huge in EM and again, if you combine that with potential financial returns, it becomes very appealing.”
On the supply side, the past two to three years have seen an exponential increase in impact bond issuance, which today represent some $250bn. “If we’d tried to launch three years ago, it would have been tiny, less than $50bn,” Cooke noted.
In addition to this larger investment universe, access to data regarding issuers is now greater, allowing the fund managers to asses potential investments more deeply to make sure they align with the fund strategy.
“We now have this window of opportunity because the impact universe is mature enough and we can run a diversified portfolio. But also because of where yields are and where valuations are at the moment, EM look very attractive on a financial basis as well,” Cooke concludes.
This is the latest Responsible Horizons fund launch on the Ireland-domiciled BNY Mellon Global Funds range. It follows the launches of the Responsible Horizons Euro Corporate Bond Fund and the Responsible Horizons Euro Impact Bond Fund.