The Future of ESG Investing

Originally published 3.18.2021

2020 is the year that changed the world forever, touching the lives of every single person on earth. Yet, as the pandemic exposed our economic, institutional, and social vulnerabilities, we have recognized that we are all interconnected and share a mutual responsibility toward driving positive change towards ESG investing. The acceleration of ESG investing has been unprecedented, evidenced by the record inflows that poured into sustainable funds throughout 2020 and the research by Blackrock highlighting the on-par ( and in many cases outperformance) of the ESG indices in comparison with traditional indices with comparable volatility.

As we continue to make extraordinary progress in ESG investing, it’s critical to ensure that we rebuild our societies and economies upon foundations firmly built on an ESG approach that is integrated and intentional, which expands to an integrated approach to active ownership, as close investor engagement with corporate boards will continue to hold firms accountable for accurate ESG disclosures.

2021 will see the rise of the focus on the ‘S’ in ESG, as the pandemic not only continues to lay bare the most vulnerable aspects of our societies, but highlights the urgent need for increased transparency and accountability within organizational value structures. This in turn results in higher standards of corporate governance which increases access to ‘S’ related to a firm’s workforce and productive efficiency. In order to ensure ESG transparency, clear performance indicators created by better ESG data will be enabled by spatial finance- the integration of geospatial data into financial reporting. Spatial finance, with its combination of remote sensing AI and earth observation,  has enormous potential to provide valuable insights across the ESG investment universe, in addition to providing a next generation framework to assess impact measurement and risk management. 

ESG as the driver of value creation ensures corporate resilience as it becomes increasingly backed by governmental and regulatory support. As global recognition and consensus of the systemic risk of climate change, increased ESG integration into investment decisions by both institutional and retail investors alike, and the demand for ESG transparency increases, ESG investing will continue to be solidified as the future of investment.

Aisha Williams, Founder & CEO at ImpactVest, Certified Expert in Sustainable Finance

Justice x Energy: Creating an Inclusive Society

(These remarks are solely my own. Not representative of my employer or any other affiliated institution or organization)

Some have said the artistic, social, and cultural dynamism known as the Roaring Twenties would not have happened without World War I and the 1918 Spanish Flu Pandemic. I am hoping we experience a similar creative explosion that touches all aspects of our lives, including the way we do business. The pandemic and protests in 2020 prompted many businesses to alter their engagement with their employees, customers, and communities to make unprecedented commitments to fight systemic racism. At the same time, awareness and commitment to the climate crises has pushed many companies and cities to look for ways to drastically curb carbon emissions. I will focus on companies at the intersection of climate change and racial equity and roles investors can play.

The stimulus bill, passed by Congress in December, includes over $35 billion for new energy initiatives. This is the most substantial federal investment in clean energy since 2009 and includes key efforts to fight climate change. It includes provisions to greatly reduce HFCs in refrigerants, support for new solar, storage, nuclear, and wind technologies, and funding for federal energy programs (find more detailed information here, here, and here). This bill should be celebrated for moving the country towards a cleaner future and laying some groundwork for the new administrations’ energy policy. However, this bill will not provide the kind of cultural and structural change we need to truly address our climate and societal crises. The change we seek will only be possible through the concerted effort of diverse visionary business leaders, investors, and policymakers working with communities of color.

Jessica O. Matthews, founder and CEO of Uncharted Power, is undoubtedly one of these leaders. Jessica founded Uncharted Power on the belief that universal access to smart, sustainable infrastructure is a human right. Uncharted Power recently launched its first sustainable infrastructure pilot in Poughkeepsie, NY, of the Uncharted System, a modular serviceable paver that converts city sidewalks and roads into an industrial IoT platform that streamlines the integrated deployment and management of critical infrastructure, from power grids and broadband to sidewalks and water pipes. The company’s proprietary suite of technology creates a platform which can easily interconnect decentralized power applications (residential solar, electric vehicle charging stations, IoT sensors, etc.) into one sustainable network, bridging the gap between standalone smart products and a fully-integrated smart city.

Another such founder is Donnel Baird, CEO of BlocPower. Donnel believes there is no path forward to fight climate change without communities of color. BlocPower provides products and services to communities of color to combat health disparities and climate change, and create economic opportunities. BlocPower makes buildings healthier by replacing fuel and natural gas systems with energy-efficient and renewable technologies. The company has partnered with financial institutions to finance and install these systems in cities such as Oakland and Brooklyn. These projects create jobs in the community, reduce operating costs in the buildings, and provide cleaner air for building occupants.

(To learn more about other minority-led clean energy companies, check out this article by Marilyn Waite at Greenbiz).

Those most likely to launch companies addressing climate justice tend to have firsthand experience of the pain and struggle within communities of color. Unfortunately, these founders also have to overcome disproportional barriers during this journey. After a year that has clearly revealed deep divisions and inequalities in our society, we need to carefully consider the outcomes of our investments. All investments have impacts. If we want to create a more inclusive society, we need to learn about companies that are focused on marginalized or underserved communities, which may require changing the structure of early-stage equity investments, developing new risk models (where race is not implicitly or explicitly a proxy), and creating new opportunities to build connections outside of personal networks. It will also require anti-racist efforts to learn about the struggle of communities of color.

Like many people, I was happy to see witness the end of 2020. In a year that provided an excess of heartache and pain, I also witnessed incredible resilience that was driven by love and compassion for our neighbors, both on our block and around the world, with a collective resolve to build a more equitable society. As Nipsey Hussle said, “sometimes you have to take two steps back to take ten forward.” I hope we move forward together in 2021.

Rabo Garba

Post Covid-19 Lessons For A More Sustainable World

There has been discussion for many years about how the nature of work would change as companies moved toward a more socially and environmentally sustainable world. Yet, year after year, frankly little changed. Then the Covid-19 pandemic hit. To help fight the pandemic, for most of 2020, employees around the world have been forced to work remotely and many ideas surrounding the nature of work have been revised.

Now that access to a vaccine is imminent, we will soon emerge from our home offices and have a great opportunity to take a major step forward re-envisioning how we conduct our work.

Surprise, remote work – works:

Long commutes, dense traffic, and smog are not particularly sustainable but until now we did not think we had an alternative. According to Owl Labs, a firm that tracks remote work, prior to the pandemic 44% of global companies did not permit any remote work whatsoever. Now those same companies have found ways to remain productive remotely, and many will choose to permit greater remote work going forward. Video conferencing will become a standard practice reducing the need for commuting into a centralized office.

Location is not what it used to be

Since the beginning of civilization, cities have formed to promote and facilitate trade and other commercial activities. This process accelerated during the industrial revolution as businesses became increasingly specialized. With specialization came an increasing need for businesses to locate near other businesses that represented other components of their production or supply chain. Since communications were either in person or via hard copy documentation, collocation made communication and coordination easier and increased efficiency. As a result, large numbers of businesses naturally pooled together in specific geographical areas, thus creating large cities.

This trend continued unabated until technology began to make it possible to easily communicate and coordinate with others over long distances. However, with huge legacy investments in personnel and infrastructure, de-centralization created a fear of disruption and businesses have, until now, been naturally slow to make changes. During Covid-19 however, businesses were forced to learn how to operate remotely, and building on that success, the process of commercial decentralization will likely accelerate. This will ultimately reduce city densities and the noise, light, and heat pollution that goes with them, as well as providing a better quality of life for employees.

We can be more efficient

The personnel management culture of most businesses has long revolved around the notion, originally rooted in the manufacturing process, that everyone shows up at a given time to work together, so the boss can ensure every employee is productive.

However, a few months before the pandemic, Professor Prithwiraj Choudhury, the Lumry Family Associate Professor at Harvard Business School, published a prescient article in the Harvard Business Review on working remotely in which he reported on research he had done which indicated “work output increased by 4.4% after transition to WFA” (Work from Anywhere). Supportive academic work like this, as well as newfound confidence derived from the practical experience of implementing remote work protocols will likely drive an increased adoption of remote work as an accepted practice.


The lessons learned during the Covid pandemic provide us several useful tools:

  1. Working remotely can be as or more productive,
  2. We can collectively reduce our office building footprint,
  3. We can save travel for key meetings by using video conferencing in lieu of routine meetings.

Hopefully, we can and will ultimately be able to use the lessons learned as a common point of reference for moving toward a more socially and environmentally sustainable world.

Daniel T. Allen

The Job That Needs to Be Done: A Young Professional’s Perspective

Originally published 11.23.20

“If you really want to make a difference, don’t give up on the business world, yet.” 

I was in an interview for Pratt Institute to study Creative Enterprise Leadership in Design  Management when the woman who would become my mentor said this to me. I had left my job as an auditor in an accounting firm, in both China and the US, and I had been searching for a way to connect my performance and the success of my firm to the giant, complicated living system that was struggling with rising sea levels, children living in hunger and poverty, and species dying. I wanted  meaningful work, work that could offer a return on the investment I was making in it. 

“When we feel that what we do is meaningless, we do less than we could and only what we must.” – Mary McBride, Chair of Creative Enterprise Leadership Program, Pratt Institute.

So many of the young professionals I meet are struggling with the same desires—a sense of purpose,  a way to make the world a better place. What is becoming increasingly clear to my generation is how modern economies create a divide between life and work. The business models we use and the metrics we apply to gauge success​ ​are solely about a startup’s ability to drive profitability and scalability. They are not evaluating the degree to which the enterprise will provide shared value or return on investment to living systems and human communities as well as to investors.  

However, since the adoption of the United Nations Sustainable Development Goals (SDGs) by 191  nations in 2015, finding ways to connect work and life, and to create shared prosperity and a healthy planet is becoming easier. According to a CONE report, 88% of millennial employees said their job is more fulfilling when they are provided opportunities to make a positive impact on social and environmental issues.​1​ And the finance industry, a world I once wanted to leave, is taking the lead by pivoting toward Environmental, Social and Governance (ESG) considerations as part of a company’s value to society. The result of the latest European CFO survey reveals that 87% of respondents  believe the overall performance of ESG issues has at least some impact on its cost of capital today.​2 

In the past four years, financial advisors and portfolio managers have gathered at the Sustainable Investing Conference in New York to discuss the latest issues and trends in ESG investing. During Climate Week NYC 2020 Cornerstone Capital Group and Sir David King, founder of Centre for Climate Repair,  spoke about how to embed climate action into work and find areas of future collaboration.​3  

1 See 2016 Cone Communications Millennial Employee Engagement Study, 2 November 2016,
2 See Deloitte Insights: Financing a Sustainable Transition, 18, August 2020
3 See Cornerstone Capital Group’s A Conversation on Climate with Sir David King, 29 September 2020,

My research in interdisciplinary design for sustainable development, social innovation and impact investing has enabled me to see an emerging movement in the world of social enterprise, organizations that address a basic unmet need or solve a social or environmental problem through a  market-driven approach​.​4 At Be Social Change workshops, people are asking “How can I work for a  social enterprise?” The reply is often “Maybe helping our current company transform into one is  equally meaningful, if not more.” Net Impact NYC’s Service Corp program receives hundreds of applications from young professionals working in technology, consulting, healthcare, etc., who are willing to offer their time and business skills to help local nonprofits or mission-driven organizations. 

I’m finding meaningful work by connecting my creativity and my business skills within this environment. Over the past few years I have offered consulting services for businesses and nonprofits to create shared value and collective impact through cross-sector collaborations. By applying design principles and processes to innovation projects, I invited collaborators to reimagine their customer journey from both the experiences view and the systems view. As a communicator, I shared compelling human stories and have conceptualized, written, and illustrated a picture book ​From My  Window: Children at Home During COVID-19​ , which was published by the United Nations in June.5  Aligning making a living and living vital lives is possible!

We know that our world is changing and challenged. Quarterly growth, while necessary, is no longer sufficient in a world at risk. Customers and employees want growth that contributes to wellbeing, not profit at any cost. This is the job that needs to be done.​6​ If we focus our business strategies,  innovation investments and technological capability on integrating work with social values, young professionals will sign up. Customers, employees, and investors will be fans and followers of our shared mission. 

4 See Social Enterprise Alliance
5 From My Window: Children at Home During COVID-19 printed book is available at UN Shop:
6 The theory of Job to be done is introduced in the book ​Competing Against Luck: The Story of Innovation and Customer Choice ​ by Clayton M Christensen, Taddy Hall, Karen Dillon, and David S. Duncan. According to the theory, customers don’t buy products or services; they “hire” them to do a job.

Xue Bai

What “Net Zero” means for investors

Originally published 10.26.2020

As governments continue to make aggressive climate commitments to build net zero carbon economies over the next 30+ years, financial regulators around the globe stand to benefit from early adoption of holistic climate risk assessment tools that monitor both physical and transition risks and opportunities to financial institutions.

On September 22, 2020, Chinese President Xi Jinping announced that China would achieve carbon neutrality by 2060. This was a groundbreaking proclamation, given that China is the largest emitter of carbon dioxide emissions.[1]

[1] Union of Concerned Scientists, 2020.

China’s actions on curtailing emissions cannot be underestimated if our global economy is to make meaningful progress on becoming net zero.  “Net zero carbon economies” may not reduce all of their carbon emissions across sectors to real zero; however, the “net” concept offers several options; purchasing offsets or investing in carbon removal technologies.

In Europe, several countries have made formal net zero by 2050 commitments via the United Nations climate convention (Sweden, United Kingdom, France, Denmark, New Zealand, and Hungary); the European Union (EU), Spain, Chile, and Fiji are all following closely behind with proposed legislation[2].

[2] World Resources Institute, 2020, as originally adapted from Energy & Climate Intelligence Unit, 2020.

As legally binding commitments expand, financial markets will need to shift away from sectors associated with high emissions and instead prioritize investments in clean energy. Scalable software-as-a-service solutions that screen for high-carbon investments will assist financial markets and investors to reallocate their capital accordingly.

Today, investors are taking advantage of software to identify and quantify physical and transition risk in their portfolios. For example, hurricanes and coastal flooding are physical climate risks that pose both acute and chronic threats to companies and their underlying assets, which may impact their valuations when business interruption occurs or when unplanned capital expenditures become unmanageable. Investors will be planning for the transition to a low-carbon economy, and they will also be factoring in the risk of climate change to their assets in a quantifiable and material manner.

Emissions reporting will continue as standard practice as climate risk reporting gains traction and is also predicted to become compulsory. The Task Force for Climate Related Financial Disclosures (TCFD) is the most widely accepted framework used by investors to report their climate-related physical and transition risks and opportunities in a consistent format.

Early adopters of climate risk assessment tools for financial institutions will be rewarded with a seat at the table when these standards around climate risk reporting require formal definitions and associated metrics. Additionally, there will be competitive advantage in reducing portfolio risk while investing early in the largest climate risk-adjusted opportunities across regions and sectors. 

We are at a turning point in the climate conversation, and we have the opportunity to turn what were once qualitative theories about climate change impacts into quantitative risk results that Chief Financial Officers or Risk Managers can clearly understand. Climate risk will become an essential component of fiduciary responsibility, as a result of country mandates and customer demands. Where will you be when international support for net zero reaches a tipping point, and investors have nowhere to go except towards green, clean investments?

Further References:

For more information on how climate risk and catastrophe models are being used in the insurance industry:

For a third party evaluation of climate risk providers: 

Lisa Veliz Waweru, Customer Success Lead at The Climate Service

COVID-19 in Context: Addressing Systemic Sustainability Risks and Opportunities and the Role Social Bonds Can Play

Coronavirus fears have led to a historic collapse in economic activity over the course of the course of the first half of 2020, with leading economies, such as the UK, entering a recession. It’s inspiring to see that the emergence of social justice movements globally is fuelling the demand from society, businesses and investors to identify long-term solutions to address systemic sustainability issues and opportunities, with a focus on human governance, health, safety, security and resilience.

The global COVID-19 outbreak has emerged as a systemic social – health, safety and security – crisis. It threatens the well-being of the world’s population, especially the elderly and those with underlying health problems. In addition, millions of people around the world are impacted, or will be impacted, from the resulting economic downturn and the loss of employment opportunities.

At a sovereign level, there is a growing question whether our social infrastructure, systems and services can withstand this pandemic, now and in the future. Governments are being asked to refocus and adapt their social efforts linked to health and safety, housing, transportation and international collaboration.

And while science suggests that the speed and impact of this crisis have likely been accelerated by the onset of global warming and the destruction of biodiversity and natural habitat, the interconnected and systemic ESG risks and opportunities can be seen across the investment value chain. 

  • For example, some consumer sector companies quickly provided good examples of innovation and adaptation by changing their production pipelines to provide healthcare equipment and services1.
  • However, key questions remain about the global workforce weathering this storm, especially in the context of low-paid and zero-hour contract workers operating within the “Gig Economy”2.

Essentially, the crisis has put the “stakeholder model” of capitalism to the test: COVID–19 has emerged as a test case for multi-stakeholder collaboration on social issues, with challenging trade-off decisions between business strategy, employment continuity and worker health. And as high performance along the social dimension remains difficult to define, let alone to measure, there is a clear need for profound and trusted social and governance data sets3 and dedicated financial instruments.

1See Four Twenty Seven’s blog on Responding to the COVID-19 Crisis: Can Industry Help?, 26 March 2020,

2See recent by Vigeo Eiris, From Bad to Worse: How COVID-19 has exacerbated Social Risk in the Gig Economy, 31 March 2020,

Are social or sustainability bonds the answer to address public funding gaps?

Over the last decade, many green and sustainable bonds were focused on addressing risks posed by climate change. However, in the he last 5 years, social, sustainability and Sustainable Development Goals (SDG)-linked bonds4 have emerged as new instruments to address social issues and funding gaps linked to healthcare and community services.

Over the course of 2020, these instruments have also been used to assist in coronavirus pandemic response efforts and are seen by investors, issuers and by the Green Bond Principles standard setter, ICMA5, as tools that can potentially improve private and public sector preparedness.

It hence comes as no surprise that combined social and sustainability bond volumes are driving this surge and could total US $150 billion by the end of the year, with ”E”,”S” and “G” bonds combined even heading for a record size of US $375 billion.6 If concerns over “social washing” can be addressed through Second Party Opinions or other transparency and assurance assessments, social and sustainability bonds may be well on track to make a difference for real economy outcomes and social resilience.

Further references:

For more information on COVID-19 and implications for managing systemic ESG risks and opportunities, please listen to Moody’s Corp’s Sustainable Finance webinar and a recent COVID19 systemic ESG risks and opportunities webinar supported by Moody’s Corp.

3 See e.g. Vigeo Eiris COVID-19 data set, launched in 2020:

4 This reference includes a broad definition of labelled and non-labelled sustainability bonds, including sustainability-linked and KPI-linked bonds.

5 See ICMA, Q&A for Social Bonds related to Covid-19,

6 Moody’s Investors Services, Q2 2020 Sustainable Finance Outlook, August 2020:

Racial Equity Fund Backed by NAACP Bridges Capital to Cause

Originally published: July 27,2020

The recent nationwide protests for racial justice are one powerful way to shine a light on systemic racism. But over on Wall Street, bridging capital to the cause is the aim of the market’s only racial equity product: the Impact Shares NAACP Minority Empowerment ETF, or NACP,which recently celebrated its second anniversary. Backed by the NAACP, the country’s leading civil rights organization, the fund is giving investors a lens for evaluating companies with strong racial and ethnic diversity policies.

NACP was launched in 2018 through a collaboration between the NAACP, the Rockefeller Foundation and Impact Shares. It began trading in July 2018, and it remains the only racial equity product in the marketplace. NACP tracks the Morningstar Minority Empowerment Index, designed to provide exposure to companies meeting NAACP criteria. It has also given the NAACP an effective new tool for its economic advocacy in the fight to eliminate racial discrimination.

“Too little attention has been paid to historically marginalized communities,” Ethan Powell, CEO of Impact Shares, told TriplePundit. “Gender funds have become popular in recent years. However, the way in which the private sector can engage communities of color differ from gender-oriented initiatives including digital divide programs and community engagement programs.”

The fund launched at a time when the private sector is facing increasing pressure from investors and other stakeholders to create and implement policies and practices that support racial diversity. Since then, NACP has proven that a socially focused financial instrument can perform well with an annualized two-year return of 11.9 percent. This places it in the top fourth percentile in its Morningstar Category over that period. 

“The goal is for investors to achieve an equity market rate of return while leveraging capital and the NAACP’s corporate engagement to make meaningful changes in the private sector,” Powell said. “Annually, we reevaluate the screens used to identify companies that are considered leaders in empowering communities of color and we rescore the universe. The goal is to have the solution evolve as data availability, goals of the NAACP and the issues impacting communities of color evolve.”

The NACP’s screens are divided into 10 categories. They include board diversity, discrimination policies and freedom of association, the scope of supplier social programs, and a minority focus in supplier monitoring. Screens also look for initiatives to address the digital divide, a diversity program, a community development program, and a minority-focused health and safety system. Each company is evaluated relative to their direct competitors. The goal is to identify 200 corporate leaders across all sectors.

The NACP’s current holdings list includes a range of Fortune 500 companies, such as tech giants Alphabet Inc, the holding company for Google, along with Apple and Intel. The list also includes leaders within the finance sector like Bank of America and JPMorgan Chase. In addition, the pharmaceutical, automotive, food and retail sectors have representation with companies such as Abbott, Ford, Kellogg, Merck, McDonald’s and Starbucks. “Inclusion represents a company’s leadership position in their sector,” Powell explains. “Position sizing has more to do with minimizing tracking error to the broader equity market.”

Since the Black Lives Matter movement has gathered steam across the nation, Powell said he has seen a resurgence in interest in the NACP. In fact, as 3p has reported, investing through an environmental, social and governance (ESG) lens has been on the upswing, appearing to be pandemic-proof. “Investors, the public sector and general population are reevaluating their role in racial empowerment and recognizing the efficacy of the NACP solution — not least, because, among some 600 ESG funds, it is the only one solely focused on issues impacting communities of color.”

For the NAACP, the fund has been an important part of its strategy for corporate engagement, Marvin Owen, senior director of the NAACP’s economic department, told 3p. “NACP has provided the NAACP with important advocacy, as social change is being driven by capital markets, and specifically investor sentiment,” he said. “Examples of impact include the numbers of firms that have sought out engagement with the NAACP with the expectation of identifying best practices in recruiting African-Americans for C-suite and board opportunities, as well as best practices in establishing impactful supplier diversity programs.”

Based in southwest Florida, Amy has written about sustainability and the Triple Bottom Line for over 20 years, specializing in sustainability reporting, policy papers and research reports for multinational clients in pharmaceuticals, consumer goods, ICT, tourism and other sectors. She also writes for Ethical Corporation and is a contributor to Creating a Culture of Integrity: Business Ethics for the 21st Century. Connect with Amy on LinkedIn.

Image credit: Taylor Grote/Unsplash

The Expanding Universe of Fixed Income Impact Investments

Originally published 6th November, 2019

Key Takeaways

  • In our view, impact investments can drive positive societal and environmental outcomes, improve portfolio diversification and risk management, and generate competitive returns.
  • As the market expands into new fixed income sectors and across more impact themes, it is now possible to construct more diversified portfolios that combine labeled green bonds with a variety of other high-impact bonds. The resulting portfolios better replicate the broader fixed income indexes while avoiding some of the pitfalls and idiosyncrasies of green and impact bond indexes.
  • Not all impact investments are created equally, and a robust ESG research framework can help fully vet the level of impact generated, the embedded credit risks and the risk-return potential.

How to realize impact investment benefits

Last year marked the seventh consecutive year of record issuance in the sustainable bond markets and 2019 is off to a fast start.

Continued growth and innovation present new opportunities to benefit from what impact investing has to offer. In our view, impact investments can drive positive societal and environmental outcomes, improve portfolio diversification and risk management, and generate competitive returns.

As the market expands into new fixed income sectors and across more impact themes, so does the portfolio construction playbook and the ability to add value through ESG due diligence. In this article, we’ll cover our ESG fixed income approach and provide examples of impact investments that we’ve invested in and some that we’ve avoided.

Impact Investing Is Growing, and for Good Reason

The growing demand for sustainable fixed income products is driven by investors’ increased interest in finding solutions that combat climate change and social inequality. Also, there is a growing body of evidence of ESG risk materiality and the recognition that ESG-managed portfolios can offer strong risk-adjusted returns.

While labeled green bonds continue to make up the largest part of the market, at $167 billion, attention is shifting to a broader range of sustainable bonds and loans. Such non-labeled green bonds experienced the most growth in 2018 (Exhibit 1), fueled in part by greater adoption of the UN Sustainable Development Goals (SDGs).

Exhibit 1: Global Sustainable Debt Issuance 2012 – 2018

Source: BloombergNEF

Casting a Wider Net to Construct Better Impact Portfolios

These are welcome developments, creating new opportunities to achieve impact, generate competitive returns and build more diversified portfolios across a broadening range of fixed income sectors.

As a specialist asset manager with 20 years of sustainable fixed income investing experience, we’ve witnessed, and in some instances helped shape, market innovations firsthand. We launched the first high yield bond fund focused on ESG factors in 1999. Concerning impact investing, we were an early investor in the green bond market, with Bank of America’s first Green Bond transaction in 2010. We also helped smaller organizations such as Envest Microfinance issue impact notes to a broader market. More recently the Pax Core Bond Fund became the sole investor in The World Bank’s first U.S. dollar denominated gender-linked bond.

Drawing on our investment grade and high yield expertise, we believe we can build income-oriented portfolios that better replicate the broader fixed income indexes while avoiding some of the pitfalls and idiosyncrasies of green and impact bond indexes.

For example, traditional green bond indexes have very long durations and heavy sector concentrations. Our team is able to combine labeled green bonds with a variety of other high-impact bonds, such as those from corporate issuers as well as asset backed securities (ABS), to create more diversified portfolios that better match the Bloomberg Barclays Aggregate Bond Index from a fundamental characteristics perspective, while achieving a better sustainability profile on measures such as carbon intensity and exposure to fossil fuel risks.

ESG Analysis & Fixed Income

The transition to a more sustainable global economy provides both risks and opportunities that inform our fixed income investment process. Impax’s ESG framework reflects our core belief that this transition will drive growth for well-positioned companies and create risks for those unable or unwilling to adapt, which is why we:

  1. Invest in issuers that are developing innovative solutions to global sustainability challenges and securities that finance positive societal and environmental outcomes
  2. Mitigate fundamental risks through sector-focused ESG research and ongoing ESG due diligence
  3. Avoid higher-risk ESG laggards
  4. Engage with companies to improve their ESG and financial performance

Our definition of impact bonds includes more than green bonds. Specifically, all fixed income securities under consideration for investment are reviewed for impact potential. A security is identified as an impact bond if its use of proceeds is aligned with one or more of the impact focus
areas listed in Exhibit 2. By leveraging the full opportunity set of impact focus areas, we can make an impact on climate change issues, which remain at the forefront of investors’ minds, as well as other issues, such as gender inequality.

Exhibit 2: Eight Impact Focus Areas Most Relevant to the Fixed Income Asset Class

We also believe that ESG analysis is an effective way to identify material credit risks. With a close eye on how sustainability impacts a company’s financial outcomes, our process tilts away from issuers that are exposed to higher ESG risks or those operating in industries that are at greater risk when it comes to the transition to a more sustainable economy — for example, energy sector issuers significantly involved in the production of high-carbon commodities.

Conversely, we tilt toward companies that we believe understand these key risks and have appropriate policies and procedures in place to mitigate them. We believe these companies, because they are more strategic in their thinking, will incur fewer regulatory challenges and fines and, overall, will be more resilient in the face of change.

Lastly, while engagement is a tool not commonly used by most fixed income managers, it is a key part of our ESG process. As both an equity and fixed income manager, Impax benefits from crossover engagements that add insight and can potentially influence our view of an issuer. And since bondholders are an essential source of financing, company management tends to be inclined to maintain good relationships and have meaningful engagement. The benefits are twofold — engagement helps improve our ability to fully vet ESG-related risks and opportunities, and it can
help improve an issuer’s ESG transparency and performance going forward.

For example, we recently supported a shareholder resolution filed at a large U.S.-based cable company. The resolution sought increased transparency on key sustainability issues. We wrote a letter of support to that company’s investor relations team, explaining that comprehensive sustainability reporting is additive to our standard credit analysis and, in our view, may help stem mismanagement of significant regulatory, legal, reputational and financial risk. Nearly a third of shareholders supported the proposal at the company’s annual meeting, which is a strong measure of support.

Impact Investment Examples

Exhibit 3 and the following examples of Pax Core Bond Fund and Pax High Yield Bond Fund investments illustrate the broad range of issuer types that comprise the impact universe today.

Exhibit 3: Impact Investments Span the Spectrum of Traditional Issuers

The World Bank Gender-Linked Bond

The World Bank gender-linked bond is the first U.S. dollar denominated sustainable development

The World Bank gender-linked bond is the first U.S. Dollar denominated sustainable development bond that mobilizes financing to address the importance of investing in women to accelerate economic development, reduce poverty and build sustainable societies. Impax leveraged our long-standing relationship with The World Bank to structure this innovative form of financing, and the Pax Core Bond Fund is the sole investor in the $4 million, 3-year, AAA-rated security. We view the World Bank’s gender-linked bond as an important step in creating a new financing solution to achieve positive social impact and gender equality. Over the past two years, the World Bank Group has invested $3.2 billion in 21 countries toward programs that provide girls with access to quality education and has also dedicated more than $200 million toward operations that address gender-based violence.

We are pleased to have partnered with The World Bank to introduce this first-of-its-kind sustainable development bond to the U.S. markets.

Mosaic Solar Loan Asset Backed Securities

Mosaic Solar Loan ABS are securitizations of residential solar loans. Solar loans are relatively new but have quickly become a mainstream form of financing used to promote renewable energy use. The decreasing costs of solar panels and the rapid growth in sales of rooftop solar systems have fueled the growth of solar loans.

We see enormous growth potential in U.S. residential solar demand. Increasingly, the demand is driven by legislation that promotes renewable energy. For example, in 2018 the California Building Standards Commission passed a measure on building energy efficiency standards that requires all new homes to feature solar panels starting in 2020.

Solar ABS is a relatively new asset class and trades at attractive spreads compared to the benchmark ABS and similarly rated corporate bonds. Despite the specialized nature of this asset class, we believe solar ABS is poised to become a mainstream sector within the securitized markets as it’s an efficient way to finance climate solutions.

Sustainable Solution Providers

Sustainable solution providers are companies that generate revenues from products or services that address global sustainability challenges. We believe companies that are well-positioned for the transition to a more sustainable economy should possess stronger future earnings, greater resilience to economic challenges and more favorable credit outlooks than companies ill-prepared for the transition, leading to higher risk-adjusted returns.

Here are two examples from the high yield sector.

Terraform Power

Terraform Power is a utility company focused on renewable energy that owns and operates a fleet of wind and solar projects. It is one of the few “pure play” renewable energy companies in the high yield universe. Because many companies within the Utilities sector of the ICE BAML High Yield Index are heavy consumers of fossil fuels for electricity production, given the significant environmental and regulatory risks associated with fossil fuel combustion, we feel it is important to reduce environmental and regulatory risks by having strong renewable energy representation in the portfolio.

Standard Industries

Within the High Yield Building Materials sector, we focus on finding companies that can help reduce buildings’ energy consumption. As the leading global producer of roofing shingles, Standard Industries may not be an obvious impact investment candidate, but the company has a fast-growing solar roofing product that we believe could be significant in the future. The product is very innovative, providing easier installation than traditional solar panels and a large cost advantage to “solar shingles.” Standard Industries enjoys a very strong competitive position and market share, while demand for roofing materials is very stable due to repair and replacement dynamics in the industry.

Beware False Flags

We believe combining ESG and impact due diligence helps us better understand risks and opportunities and avoid certain problematic investments:

We avoided bonds offered by one U.S.-based utility company because of the company’s poor management of toxic emissions and waste. Despite its certified green label and being one of the largest green bond offerings by a utility, the company’s involvement in recurring coal ash pollution incidents raised questions for us.

We also avoided residential Property Assessed Clean Energy (PACE) ABS which are authorized by local governments and often promoted as a form of energy-efficient financing.  The residential PACE loans were high interest rate loans typically originated with lax underwriting standards that failed to check borrowers’ ability to repay. Moreover, such loans were often offered to low-income homeowners, and some loans were made for energy efficiency projects we would describe as dubious. Even though these securities typically have a certified green label from a sustainability rating vendor, we have avoided these ABS due to the lack of nationwide consumer protection regulations.

Lastly, bonds from a producer of utility-grade wood pellets were marketed as a “green” opportunity. However, we believe that the environmental benefits of biomass as an energy source have been overstated. A 2015 report from Climate Central, a climate change research organization, found that switching from coal to wood increased carbon dioxide (CO2) emissions at a UK power station by 15 –20 percent for each megawatt produced.

Positioned to Benefit

Impact investing is a relatively new yet fast evolving area of the fixed income market, with an increasingly diverse range of options available beyond labeled “green” bonds. The expanding universe offers new opportunities to build more diversified portfolios akin to traditional fixed income indexes as opposed to the more limited green bond indexes. That said, not all impact investments are created equally, and a robust ESG research framework can help fully vet the level of impact generated, the embedded credit risks and the risk-return potential.

Our ESG leadership, issuer engagement and expertise positions us to benefit from the continued growth and innovation in the sustainable bond market. Our aim is to generate competitive returns along with positive societal and environmental impact through portfolios well-positioned for the transition to a more sustainable economy.

Learn more about the Pax Core Bond Fund and Pax High Yield Bond Fund .

1According to research company BloombergNEF, the sustainable debt market comprises labeled bonds and loans that finance projects with green benefits, social benefits or a mixture of both.

2“Green Bonds: The State of the Market 2018,” Climate Bonds Initiative.

3Sustainable development bonds are issued to finance projects that solve one or more of the 173 Sustainable Development Goals set by the United Nations. These include initiatives to reduce poverty and gender inequality, mitigate climate risk and decrease environmental degradation, and promote peace and justice.

Diversification does not eliminate the risk of experiencing investment losses.

Risks The Pax Core Bond Fund yield and share price will vary with changes in interest rates and market conditions. Investors should note that if interest rates rise significantly from current levels, bond fund total returns will decline and may even turn negative in the short term. Mortgage related securities tend to become more sensitive to interest rate changes as interest rates rise, increasing their volatility. There is also a chance that some of the fund’s holdings may have their credit rating downgraded or may default.

The Pax High Yield Bond Fund can invest in “junk bonds,” which are considered predominately speculative with respect to the issuer’s continuing ability to make principal and interest payments when due. Yield and share price will vary with changes in interest rates and market conditions. Investors should note that if interest rates rise significantly from current levels, bond fund total returns will decline and may even turn negative in the short term. Mortgage related securities tend to become more sensitive to interest rate changes as interest rates rise, increasing their volatility. There is also a chance that some of the fund’s holdings may have their credit rating downgraded or may default.

About the Indexes

The Bloomberg Barclays US Aggregate Bond Index is a broad base index maintained by Bloomberg L.P. often used to represent investment grade bonds being traded in United States.

The ICE BAML High Yield Index tracks the performance of below investment grade, but not in default, U.S. dollar denominated corporate bonds publicly issued in the U.S. domestic market and includes issues with a credit rating of BBB or below, as rated by Moody’s and S&P.

One cannot invest directly in an index.

The top 10 holdings of the Pax Core Bond Fund as of 09/30/19 are as follows: United States Treasury Note, 3.375%, 11/15/48 4.6%; United States Treasury Note, 2.625%, 2/28/23 4.3%; United States Treasury Note, 2.750%, 9/30/20 2.4%; United States Treasury Note, 2.125%, 11/30/23 2.2%; United States Treasury Note, 0.375%, 7/15/27 1.5%; United States Treasury Note, 4.500%, 2/15/36 1.4%; United States Treasury Note, 4.375%, 11/15/39 1.2%; United States Treasury Note, 3.500%, 2/15/39 1.1%; United States Treasury Note, 2.250%, 3/31/26 1.0%; United States Treasury Note, 2.375%, 3/15/21 1.0%. Holdings are subject to change.

The top 10 holdings of the Pax High Yield Bond Fund as of 09/30/19 are as follows: Altice France Sa, 7.375%, 5/1/26 0.9%; Hat Holdings I LLC, 5.250%, 7/15/24 0.8%; Fly Leasing, Ltd., 6.375%, 10/15/21 0.8%; Air Canada, 7.750%, 04/15/21 0.7%; Parkland Fuel Corp., 6.000%, 4/1/26 0.7%; Cco Holdings LLC, 5.375%, 6/1/29 0.7%; Tempur Sealy International, Inc., 5.500%, 6/15/26 0.7%; Williams Scotsman International, Inc., 6.875%, 8/15/23 0.7%; Kar Auction Services, Inc., 5.125%, 6/1/25 0.7%; Prestige Brands, Inc., 6.375%, 3/1/24 0.7%. Holdings are subject to change.

The statements and opinions expressed are those of the authors of this report. All information is historical and not indicative of future results and subject to change. This information is not a recommendation to buy or sell any security.Paragraph


Yvonne Tai

Senior Fixed Income Analyst, Pax Core Bond Fund, Assistant Vice President

Yvonne Tai is a Senior Fixed Income Analyst for the Pax Core Bond Fund and is an Assistant Vice President at Pax World Funds. Yvonne began her investment analysis career in 1997 and has extensive experience in securitized products.

Greg Hasevlat

Sustainability Research Analyst, Impax Asset Management LLC

Greg Hasevlat is a Sustainability Research Analyst at Impax Asset Management LLC and Vice President, Sustainable Investing at Pax World Funds.

Impax Asset Management LLC, formerly Pax World Management LLC, is investment adviser to Pax World Funds.

Pax World Funds are distributed by ALPS Distributors, Inc. ALPS Distributors is not affiliated with Impax Asset Management LLC.

You should always consider Pax World Funds’ investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please download a fund prospectus. Please read it carefully before investing.

Impax Trademarks

Impax and SmartCarbon are trademarks of Impax Asset Management Group Plc. Impax is a registered trademark in the EU, US and Hong Kong. SmartCarbon is a registered trademark in the UK, the EU and the US.

Helping Others Globally

I have always been fascinated by foreign languages. My first language was Mandarin Chinese, I learned English at school, and I eventually studied French, Latin, Russian, German, Hawaiian, Spanish, and Arabic. While I can use only a few of these to communicate, I always felt that languages were a superpower that could open new worlds and perspectives. 

I became a U.S. diplomat because I felt that my interest in languages and foreign policy would help communicate the U.S. story to the world. I was proud to represent America overseas and show citizens of other nations the qualities that I love about the United States: its openness, creativity, meritocracy, diversity, willingness to take risks, and belief that all people are equal and deserve a fair chance to make their lives better.

I served on the U.S. team that negotiated Agenda 2030, the groundbreaking UN development agenda that established the Sustainable Development Goals in 2015. After that experience, I decided I had spent enough time discussing poverty, and wanted to do something that more concretely improved the lives of poor people.

The United Nations Capital Development Fund (UNCDF) is a UN aid agency that focuses on making finance work for the poor in the world’s 47 least developed countries (LDCs). UNCDF uses finance to fight poverty by expanding financial inclusion, helping local governments deliver services to their citizens, and working with private sector companies to extend goods and services to marginalized and underserved communities. I joined UNCDF in 2016, attracted by its pragmatism, technical expertise, and focus on the poorest and most vulnerable.

UNCDF has been a leader in creating new ways for impact investors to support the UN’s work. In 2018, we launched the first UN-affiliated Exchange Traded Fund on the New York Stock Exchange, ticker SDGA ( UNCDF partnered with Geneva-based impact investor Bamboo Capital Partners to create the BUILD Fund (, a blended finance investment vehicle that will channel growth finance in the form of debt and equity to impactful small and medium enterprises sourced by UNCDF in the LDCs. And later in 2020, UNCDF will launch a municipal bond fund to help developing country cities to finance climate-resilient infrastructure projects.

In response to the Covid-19 pandemic, UNCDF is leveraging a range of technical expertise and investment instruments to reduce and limit economic and social hardship for poor communities. UNCDF is supporting governments and businesses on digital payments to enable key financial flows; boosting the capacity of local governments to accept and deploy funding quickly to meet local needs; and injecting targeted investment funds into small and medium enterprises (SMEs) to stabilize local economies, preserve and create jobs, and accelerate recovery.

As an example, UNCDF recently supported SafeBoda, a Ugandan motorcycle ride-sharing company, to shift its business model to include food and medicine delivery. This has saved the jobs of 18,000 drivers, linked 800 merchants to the marketplace, and allowed 30,000 customers in the greater Kampala region access necessities while maintaining social distancing.  This is just one example of how a targeted infusion of capital can have a disproportionate social and financial impact in poor countries.

UNCDF has always supported the LDCs to build stable and resilient economies. As we look to invest in a post-pandemic world, UNCDF will continue to work to drive finance in more dynamic ways for poor people and excluded populations.  I am proud of the work we do and invite interested investors to join us!   

For more information about UNCDF go to

The Sustainable Finance Podcast: Sustainable Finance Knowledge for Financial Advisors

I launched The Sustainable Finance Podcast (SFP) in May of 2018 based on the same choices I made as a mid-career financial advisor that doubled my practice revenue over five years by integrating sustainable and ESG investment strategies into client portfolios. Those choices also motivated me to write 49 sustainable finance leadership articles for FA Magazine over a four-year period, beginning in 2014 after I sold my practice.

My favorite podcast programs are conversations that reveal the personal passion of the subject matter expert guest for any one or more of the UN SDGs. I figure that since 191 UN member countries agreed in 2015 on the most important global issues facing humanity, we should keep the conversation alive and well. And my One for All Pledge is: Clean Water and Sanitation – SDG #6.

In 2018 I saw the SFP digital media platform as my next best opportunity to promote this once-in-a-generation business building opportunity for motivated RIAs and advisory practices. The timing was also perfect to support Paul Ellis Consulting’s co-sponsorship of the 2018 Sustainable Investing Conference at the United Nations, which focused on introducing the UN Sustainable Development Goals (SDGs) to members of the U.S. Registered Investment Advisor (RIA) industry.

We recently posted Episode 70 and the Sustainable Finance Podcast (SFP) subscriber base is over 5,000 across several distribution networks. I’m now seizing opportunities to write about SFP conversation topics for investment industry publications, joining and moderating ESG conference panels and having podcast conversations with senior UN officials and corporate CEOs. Public and private sector thought leaders are eager to tell their business critical and public policy ESG integration stories to the SFP investor and advisor audience.

I’m proud to say that 51% of SFP thought leader conversations are with women advisors, portfolio managers and sustainable finance analysts. And I believe that the gender composition of the financial services industry is gradually shifting in favor of women advisors to women clients as the largest intergenerational wealth transfer in history gains momentum over the next decade.

The other major financial services industry trend I see rapidly growing and eventually becoming dominate is digital communications, marketing and service delivery. Financial advisors and asset managers in Europe will be paying a government regulated price for their carbon footprint by year-end 2020. And I expect that the same will be true in the U.S. and Asia before too long, as the Baby Boomer industry cohort transitions to retirement. I believe the Next-Gen industry cohorts will build core business models that provide commercial solutions to an environmental or social challenge and contribute measurable progress toward one or more of the United Nations Sustainable Development Goals (“SDGs”).