Simon Bond, Columbia Threadneedle
Simon Bond, director of responsible investment portfolio management at Columbia Threadneedle Investments, took home the award for Outstanding Contribution to Sustainable & ESG Investing at this year's Investment Week Sustainable & ESG Investment Awards.
Here, we hear from Simon about how attitudes towards sustainable and ESG investing have been transformed throughout his career, what investors should look out for in terms of the development of the green, sustainability and social credit market, and what he would like to see now from the industry in this area.
You have seen a major transformation in attitudes towards sustainable and ESG (environmental, social and governance) investing during your career. What really excites you about the current opportunities, especially in terms of social investing?
I became an analyst in 1991 and the first credit I analysed was issued by the Peabody Trust Housing Association. So, opportunities to do good for society as well as earn a financial return have been there from the very start of my career. What's happened more recently has been a focus shift into this area, and people's understanding that you can harness these kinds of instruments for the good of society through financial markets.
Why has this changed? Well initially, of course, we have had the social crisis that was the Covid-19 pandemic, so people's attention was broadened from just purely "environmental" before the pandemic to encompass some of the consequences of the pandemic, ie health, but also education and employment, which are all social elements.
So where we used to think in terms of the E and the S as being almost separate, this year has shown you really can't and shouldn't separate the two. The key point is if we get the environment wrong, it's going to create some of the worst social consequences. And if we get the environment right, if we do get to net zero by 2050, if we do limit temperatures to 1.5 degrees or less, then it is going to cost an awful lot of money.
We need to make sure that the cost of that transition is not borne by those in society least able to afford it. That is very much part of the idea of a just transition, and we want to transition the whole of society, whole economies, including those currently benefiting from high carbon emitting industries and the oil and gas industry. We need to transition those jobs and those communities across to the low carbon future.
What should investors look out for in terms of the development of the green, sustainability and social credit market?
I have been really impressed by the size and speed of response of the bond markets to the pandemic. We have Covid response bonds which were developed out of what were originally the green and social bond principles and sustainability bond guidelines, but they target the clear and present danger of the health crisis.
Size-wise, we are looking to address some of the other ills within society that need to be financed, because we are in the business of financing solutions. We now have what are effectively KPI-linked bonds, called sustainability-linked bonds - not to be confused with sustainability bonds. We've got blue bonds, addressing some of the biodiversity issues within oceans, which are green bonds but apply themselves to life below the water. And we've got transition bonds that are use-of-proceeds bonds that are basically going to transition the infrastructure we need to facilitate this move to a lower carbon economy. So there has been lots of innovation in supporting these social and environmental ambitions.
Also, from sitting on the ICMA Social Bond Principles Impact Reporting Subgroup, we really focused on encouraging the issuance of gender bonds, which is through women-led businesses or promoting women in the workplace. This is what the UK Social Bond fund is all about, trying to focus on additional benefits for society and addressing inequalities and deprivation.
What would you like to see as sustainable and ESG investing becomes more mainstream?
In a word, rigour. I don't want this industry just to be boilerplating or greenwashing, or social washing or even rainbow washing, which is the equivalent for sustainability. So what I want to see is rigour and depth in the market. We need to develop products and instruments that really do the job properly.
Some of the things we are looking at for the industry in terms of the use-of-proceeds bonds is not just verification that the money is going to the projects that were predetermined, but to get confirmation from the target population that actual money is doing some good. That would be a big development. It costs a lot of money, it takes a lot of work to do that, so the fact we are going to that kind of effort within the funds I run, I am obviously conscious of anybody saying they are doing it and doing it with the same rigour we have.
Consequently, we were pleased to see the government's publication of a roadmap to sustainable investing, and I think that will embed itself within what the government is requiring of not just investors but IFAs, and indeed companies themselves, in making sure we don't have this concept of greenwashing.
How have the strategies you run developed over the years, and can you highlight some interesting opportunities?
Obviously, we have got more sophisticated, but actually what we're trying to do is to keep ahead of the developments in the market. One of the things we target within the funds is this concept of social intensity, the value of the benefits.
Within both sustainability and impact markets there has been the development of a common language: the former translated into the United Nations' Sustainable Development Goals (SDGs) and the latter into the Impact Management Project (IMP) classifications.
So we map every bond in the portfolio to its primary SDG through the 169 targets that underlie the 17 SDGs because they're much more granular and developed market relevant.
The equivalent for Impact, we think, in the future will be the ABC categorisation from IMP. This is A, act to avoid harm; B, benefit stakeholders; and C, contribute to solutions. Again, we are mapping every bond we have in the portfolio to those classifications.
So we have translated what we're doing in the fund into a common language for sustainability and for Impact, allowing you to start to compare what we're doing with other asset classes, with other funds, with other managers etc. I think that is something that clients appreciate.
We will be working within the remit of the ICMA, on the EU social taxonomy in the next months and years. This is very important. We have already seen the green taxonomy make this a much more commoditised market, to make the definitions clearer and more consistent. We need social taxonomy to do the same and we want to work on it at this embryonic stage to get it right. The fact we're out there running a fund is a huge benefit - as indeed it proved when the social bond principles were established.
The other aspect I want to highlight could come from the work we're doing on the Impact Investing Institute, where I sit on the Advisory Council. Columbia Threadneedle Investments is a "funding partner" for that institute, which developed out of the government's impact taskforce, and some of the developments it is working on could highlight really important projects within the impact industry in achieving impact within society and for the environment, both greening finance and financing green.
There is more we can do as a financial industry to facilitate the required changes. So, the UK Infrastructure Bank which was announced last November is very exciting. This is specifically aimed at funding infrastructure, building back fairer in deprived areas, or levelling up in government parlance.
This ties into the concept of "place-based investment" which we incorporate within the way we analyse the social intensity of our funds - so particularly addressing deprived areas within the UK and replacing the infrastructure spending that used to come through the European Investment Bank. It really has quite a lot of impact when you do it through that structure, because if you raise a pound of capital you can achieve £4 or £5 of impact through the nature of the structure itself. So it's important we encompass that.
I would love to see issues from the UK Infrastructure Bank come to market, and particularly social bond issues or sustainability bond issues.
One of the key achievements of the past few years has been the UK green gilt. This is pushing boundaries in terms of where you can go with green bonds, because it encompasses the concept of social co-benefits. So 100% of the money is going to go into green infrastructure, green projects, but in addition to environmental benefits it seeks to encompass additional social benefits such as green jobs and other social and economic benefits in deprived areas. This is really a coming together of the E and S within ESG. You really shouldn't differentiate between the two, with products that deliver and report on both these elements. This is something that has been recommended in the latest June 2021 amendments to the Green and Social Bond Principles.
We have been doing an awful lot of work with originators and potential issuers on issuing more targeted bonds. These usually have quite a long lead time, two or three years in the making, extending this effort to issuers whose whole business is of benefit to society (so called Pureplays) such as Welcome Trust using scientific research to improve people's lives and who partly funded the Francis Crick Institute.
About Simon Bond, Executive Director, Responsible Investment Portfolio Management at Columbia Threadneedle Investments
Having specialised in corporate bonds for 30 years, Simon Bond has been a pioneer in conceiving and developing social bond funds. He helped drive the development of a green, sustainability and social credit market and has been instrumental in the issuance of the UK's first green sovereign bond.
Launched in 2013, the Threadneedle UK Social Bond Fund was the first daily liquid fund to target bonds that benefit society, bringing social investment into the mainstream. Since then Simon has launched a European and Global version and the assets under management recently passed $1 billion - evidence of growing interest from clients in impact investing through the bond market.
At the same time Simon has sought to drive growth in the asset class through the engagement of corporates and others to issue specific-use-of-proceeds bonds, including social bonds.
In addition to his job as Executive Director, Responsible Investment Portfolio Management, Simon serves on the working group of the International Capital Markets Association (ICMA) that developed and published the social bond principles, aiming to promote integrity in the bond market, and the Advisory Council of the Impact Investing Institute.
Last year, he joined a working party under the Impact Investing Institute, Green Finance Institute and the Grantham Institute to promote the Green+ Gilts Campaign (a campaign which he launched in May 2019) and produce a draft framework for the Government in October 2020. He then left this group at the end of the year to form the working party under the Investment Association. He is also on the Impact Reporting and Just Transition sub working groups for ICMA's Social Bond Principles. In addition to launching the campaign for the issuance of a green gilt in May 2019 he also called for the creation of a UK Infrastructure Bank. He was pleased to see the chancellor announce both in 2020. Finally, Simon has recently contributed to the G7 Impact Taskforce Working Group B - on instruments and policies to scale impact investment.
You can find out more about the awards by visiting the website here.
