Invest in socially responsible debt

April 3, 2021 | 5:00 am

By: Juan Ignacio Corcuera *

In previous posts I have commented on the growing demand for investment instruments with a sustainable approach. For the most part, I have focused on explaining the different ways to build an equity portfolio with an ESG approach. However, I am going to focus on commenting on two initiatives with this approach, which are very interesting in the fixed income market.

It was to be expected that, given the growing appetite of investors for instruments with a sustainable approach, all kinds of assets would begin to innovate and implement solutions with this approach. Therefore, it is worth mentioning and being aware of these new alternatives that, in addition to bringing great benefits for global development, can provide interesting returns for investors.

The first initiative that I would like to mention was the one carried out by the Ministry of Finance and Public Credit a couple of months ago. In September 2020, Mexico became the first country to issue a sustainable sovereign bond, worth 750 million euros, linked to the UN Sustainable Development Goals (SDGs).

With the resources obtained with this vehicle, Mexico will be able to finance sustainable projects linked to the UN SDGs. The instrument has a term of seven years and offers a rate of return of 1.35%.

Although the issuance has been questioned by several, who doubt the ESG rating of the bond, from my point of view it is a very good initiative that we should celebrate and I hope they continue working in this line.

In the last few days they have published another extremely interesting initiative in Africa. The World Bank will sell a bond designed to protect South Africa’s black rhino species.

The bond has a duration of five years and is expected to raise about $ 45 million. It is the first wildlife conservation bond, it is an atypical bond that does not pay an annual coupon, the prize is rather based on the growth rate of the annual population of the black rhinoceros during the five years of life of the bond.

The award will be paid by the Global Enviromental Facility, who agreed to return their capital to investors at the end of the 5 years and will wait for the result of the growth of the rhinos to determine the rate, which is capped at 4%.

This innovative structure was developed by Credit Suisse, who said they hope it will be a success, so that they can later test it with other species. The great advantage of this type of instrument is that it is not structured solely as a donation, as organizations used to work in order to continue working, but by offering a prize, it becomes an extremely attractive instrument for investors.

Likewise, linking the award to the success of the project will undoubtedly lead investors to follow up, and continue making efforts to achieve the success of the project.

These are just two examples of the new responsible strategies taking place within the fixed income asset class. In the next post I will write about how to invest in instruments of this asset class with a sustainable approach, so that you can have socially responsible strategies in your portfolio that will also generate attractive returns.

* Juan Ignacio Corcuera works as an Asset Management analyst at Grupo Bursátil Mexicano (GBM), where he actively analyzes the market to find opportunities and implement investment strategies to promote savings among Mexicans and help them carry out the transition of savers to investors.

Twitter: @IgnacioCorc

This text is an opinion blog. Its content is the responsibility of the author and does not necessarily represent the position of THE CEO.

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