Climate Action

Hillary Marshall discusses taking sustainable fixed income opportunities to the next level

An interview with Hillary Marshall, Lead Research Analyst at Domini Impact Investments.

  • 17 September 2018
  • Rachel Cooper

Ahead of the Sustainable Investment Forum taking place in New York on the 26th September, we caught up with Hillary Marshall, Lead Research Analyst at Domini Impact Investments, to discuss if sustainable fixed income opportunities can be taken to the next level.

Where is the fixed-income market heading in the SRI space?

At Domini, integrating ESG is part of the investment process across all our investment products. We seek to manage risk and identify opportunities while meeting our investment objectives for our shareholders. As many have noted, fixed income remains one of the largest untapped asset classes and perhaps has some of the greatest potential in the SRI space. We believe fixed income investments are particularly well suited for addressing a wide range of economic disparities in our society such as affordable housing, education, economic development, health care, and environmental issues. There is great opportunity for lasting impact in this asset class.

When Domini began investing in fixed income in 2000, we launched one of the first fixed income products to incorporate environmental and social standards into the investment process. As a firm that has been in the space for over two decades, we are excited to see the growth and evolution of the conversations around ESG integration into fixed income investing. The rise in green bond issuances and the increased focus on standardization of green bonds has been a promising development for the industry and yet, there’s always more work to do. We have steadily increased our fixed income allocation in labeled and unlabeled green bonds in the past three years. We are also actively seeking out opportunities in the social bond and sustainability bond space. 

We expect to see continued growth and demand for green, social and sustainability bonds. Issuances by sovereign entities, municipalities, corporations, and multilateral development banks have significantly advanced with the help of the Green Bond Principles and with validation from third party verifiers and second party opinions. There is also an increased focus on what it means for green securitization. The space is increasingly becoming more creative with the securitization of green financing. For example, Fannie Mae’s Green Financing Program has rapidly grown in the past few years alone.

The increased exposure to these innovative investments gives us optimism about the direction of fixed-income investing in the SRI space. We are hopeful that the next step for the industry will be true integration of analyzing risk and identifying opportunities for positive impact across all fixed-income asset classes, not just through exposure with these targeted investments.

Could you tell us more about your focus on impact reporting? What are your main areas of focus?

Transparency has always been a core tenet of Domini’s culture, which I really appreciate. We have a long history dating back to the early 2000s of reporting our “social impact updates” which highlighted our advocacy work. In 2017, I was part of a team that led the initiative to release our first comprehensive annual impact report. Domini’s 2017 Impact Report provides a thorough overview of our standards, our advocacy, and our focus on community investing, which is accomplished through fixed income investments.

Our shareholders know that their money isn't invested in tobacco or oil and gas exploration and production companies, but were they aware that they are invested in a bond that finances the building of a mental health facility in an area that has severe unmet medical needs? Or that in the past quarter we were signatories to investor statements addressing forced labor in supply chains or our concerns with banks and credit card issuers’ exposure to firearm sales? We hope our shareholders value the intentionality of our work and our dedication to leading the industry forward. 

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Our greatest asset is our shareholders. They deserve to understand what it means to invest with us versus another mutual fund, or an index fund for example.  Impact reporting plays a crucial role in bridging that conversation. We were pleased to hear from a major US Agency that our report has inspired them to issue their inaugural impact report later this year.

Why is the social angle in green bond due diligence important? How is this covered?

Investors must be diligent in their standards as they choose what is an acceptable investment for their portfolios. For our research team, just because a bond is labeled green doesn’t necessarily mean it would be an eligible investment for us. And vice versa, a bond can be unlabeled and be eligible for our investment universe because we consider it to be climate aligned. At Domini, we emphasize both environmental and social analyses as we undergo a holistic evaluation of a green bond issuance.

It’s been especially encouraging to see the rapid growth of green bond issuances in the United States and around the world. Global green bond issuances grew 78% in 2017, hitting a record $155.5 billion, and the Climate Bonds Initiatives estimates that they could reach $250-300 billion this year. These investments are a necessary tool used to finance the transition to a low-carbon future by addressing climate change adaptation and mitigation or other environmentally beneficial purposes. The financial community can use green bond issuances as a way to fill capital gaps needed to live in a habitable world in the future.

First and foremost, all eligible investments must meet Domini’s Impact Investment Standards. As we review a green bond issuance, we conduct a thorough analysis of key stakeholder relations controversies. For example, we take seriously cases of community opposition to project siting, in particular for indigenous communities, among other considerations.

What role is Domini Impact Investments playing in promoting sustainable investment through your engagement work?

As investors, we have focused our fixed-income engagement activities on the responsible development of the green bond market. We have a long-standing commitment to transparency and seek the same from issuers.  Issuers are looking for feedback on their green bond frameworks, the eligibility for the use of proceeds, and what investors seek in terms of reporting. We’ve been active in pre-issuance engagements with corporate, municipal, and multilateral development banks on their inaugural green bonds to further develop the field.  Additionally, we have provided consultations with sovereign entities on our expectations as investors. These conversations have been helpful in the development of our standards and in our evaluations of the issuers themselves and we expect to play a larger role in the engagement process in the future.

Hillary Marshall, Lead Research Analyst at Domini Impact Investments, will be speaking on the panel “Taking the sustainable fixed income opportunity to the next level” alongside Andrew Russell, Director of Fixed-Income Investments at the Pension Boards-United Church of Christ on September 26 at the Sustainable Investment Forum North America.