If building a sustainable bond portfolio sounds tidy and straightforward, it isn’t. The auto industry illustrates the difficulty of finding a perfectly sustainable private sector investment.

General Motors and Ford Motor have made significant commitments to building out their electric vehicle lines in recent years. Electric vehicles are responsible for about 65% less greenhouse gas emissions than gasoline-powered cars annually.¹

That percentage could rise as renewable power continues to grab market share from coal-fired electric utilities, thereby playing a greater role in fueling electric cars. Yet General Motors and Ford Motor also currently rely heavily on sales of relatively fuel-inefficient trucks and SUVs.

Why not just invest in Tesla Motors, which makes only electric vehicles? Tesla’s products are great for the environment, but the company has struggled with its manufacturing process and confronted some well-publicized governance issues. The company itself presents some ESG risks that many long-term investors would want to think carefully about, even though Tesla’s products further some of the United Nations’ Sustainable Development Goals (SDGs).

In other words, no automaker is perfect from a sustainability perspective. Ultimately, we think it’s worth supporting traditional car companies’ transition to electric vehicles, even if they don’t overhaul their entire vehicle lineups overnight. In fact, we believe it’s imperative to invest in companies that are trying to make progress toward sustainability.

Engaging with Management Is Crucial

But that doesn’t mean bond issuers hold all the cards. Companies regularly need fresh injections of capital. And bonds are a major source of funding for the auto industry and a more stable funding source than equity, making it crucial to issuers on the road to sustainability.

By engaging with companies and bankers on ESG matters and bond structures, investors can be clear about the types of objectives and key performance indicator (KPI) targets they believe reflect best practices. Even if a company fails to set acceptable terms with a current bond issue, a continuing engagement program can secure better terms in future. And asset managers must engage frequently with management about ESG issues to ensure that leadership teams abide by their promises in developing products, services and practices that support the SDGs.

Fixed-income asset managers don’t need to stand alone in holding bond issuers accountable. It’s helpful to rely on multiple partners, including industry organizations that engage and advocate for changes, and in-house resources such as partners in equities portfolio management and responsible-investing experts who span asset classes.

Asking companies to participate in building a greener, more just world isn’t easy—but the more voices that demand change, the sooner a sustainable future will arrive. It’s up to investors to ensure that it arrives on time.

¹The figure includes only emissions during the owner’s operation of the car. US Department of Energy, “Alternative Fuels Data Center: Emissions from Electric Vehicles,” Energy Efficiency & Renewable Energy (website) (May 20, 2022), https://afdc.energy.gov/vehicles/electric_emissions.html.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to change over time.

About the Author
Erin Bigley, CFA
Erin Bigley is a Senior Vice President and Head of Fixed Income Responsible Investing. In this role, she oversees the Fixed Income team's responsible investing strategy, including integrating environmental, social and governance (ESG) considerations throughout the team's research, engagement and investment processes. Bigley also oversees fixed-income ESG thought leadership and product development. She is a member of the firm's Responsible Investment Steering Committee. Bigley joined the firm in 1997 and previously served as a portfolio manager and trader for the global and Canadian bond strategies. She spent two years based in London as the global head of Fixed Income business development for institutional clients. Bigley served as a Fixed Income senior investment strategist for over a decade, most recently as head of the strategist team from 2018 to 2021. She holds a BS in civil engineering from Villanova University and an MBA from the Massachusetts Institute of Technology's Sloan School of Management. Bigley is a CFA charterholder. Location: New York.

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AllianceBernstein

AllianceBernstein

AllianceBernstein (AB) is a leading global investment management firm that offers high-quality research and diversified investment services to institutional investors, individuals, and private wealth clients in major world markets. We believe corporate responsibility, responsible investing and stewardship are intertwined. To be effective stewards of our clients’ assets, we strive to invest responsibly—assessing, engaging on and integrating material issues, including environmental, social and governance (ESG), and climate change considerations in most of our actively managed strategies. We also believe that strive to hold ourselves as a firm to similar practices that we ask of issues. Our stewardship practices, investment strategy and decision-making are guided by our purpose, mission and values.

Our purpose—pursue insight that unlocks opportunity—inspires our firm to act responsibly. While opportunity means something different to each of our stakeholders; it always means considering the unique goals of each stakeholder. AB’s mission is to help our clients define and achieve their investment goals, explicitly stating what we do to unlock opportunity for our clients. We became a signatory to the Principles for Responsible Investment (PRI) in 2011. This began our journey to formalize our commitment to identify responsible ways to unlock opportunities for our clients through integrating material ESG factors throughout most of our actively managed equity and fixed-income client accounts, funds and strategies. AB also engages issuers where it believes the engagement is in the best financial interest of its clients.

Because we are an active manager, our differentiated insights drive our ability to deliver alpha and design innovative investment solutions. ESG and climate issues are important elements in forming insights and in presenting potential risks and opportunities that can have an effect on the performance of the companies and issuers that we invest in and the portfolios that we build.

Our values provide a framework for the behaviors and actions that deliver on our purpose and mission. Values align our actions. Each value emerges from the firm’s collective character—yet is also aspirational.

• Invest in One Another means that we have a strong organizational culture where diversity is celebrated and mentorship is critical to our success. When we invest in one another, we empower our employees to reach their potential, so that they can help our clients realize theirs. This enables us to partner with clients to design and deliver improved investment outcomes.
• Strive for Distinctive Knowledge means that we collaboratively identify creative solutions to clients’ economic, ESG and climate- related investment challenges through our expertise in a wide range of investment disciplines, close collaboration among our investment experts and creative solutions.
• Speak with Courage and Conviction informs how we engage our AB colleagues and issuers. We seek to learn from other parts of our business to strengthen our own views. And we engage issuers for insight and action by sharing ideas and best practices.
• Act with Integrity—Always is the bedrock of our relationships and has specific meaning for our business. Unlike many other asset managers, we’re singularly focused on providing asset management and research to our clients. We don’t engage in activities that could be distracting, or create conflicts—such as investment banking, insurance writing, commercial banking or proprietary trading for our own account. We are unconflicted and fully accountable.

As of September 30, 2023, AB had $669B in assets under management, $458B of which were ESG-integrated. Additional information about AB may be found on our website, www.alliancebernstein.com.

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