Q&A with Man Group’s Bastin: ‘Finding the right opportunities in the auto sector has been challenging’

Two years on from the launch of the Man Global Climate Transition Impact Bond fund, manager Christina Bastin discusses performance, seeking opportunities and why she expects green and transition bond issuance to continue to grow this year.

It has been over two years since the Man Global Climate Transition Impact Bond fund launched (in January 2024). Talk us through how the portfolio has been positioned since then? 

The fund operates with a twin mandate: economic return and climate impact. Ideally, each position would achieve both objectives equally. However, at times some issuers will be highly impactful from a climate perspective with a slightly more moderate return potential while other holdings may contribute more economically than from a climate impact point of view. Overall, our aim for our investors is to create a well-structured diversified portfolio with an average investment grade credit rating. 

Our impact framework guides the macro top-down sectoral allocation. From the outset we follow our Climate Allocation Compass which we have developed with both our in-house climate scientists and at Columbia University. This top-down framework groups key climate solutions, providing us with a platform from which to allocate dynamically, prioritising by largest decarbonisation potential and scalable impact.

In terms of our sector positioning, the fund has had an overweight in low carbon energy (primarily green utilities) since inception. Our exposure to the sector has remained consistent, but we have oscillated across regions (at times overweight EM green power producers) as well as across the capital structure. We have also been active in calibrating the currency and interest rate composition of the portfolio.

While we aim to create a diversified portfolio across a range of sectors, credit selection is key and if we do not find material value in sectors from either a climate or economic return perspective, we will not allocate. This has been the case in the industrials sector as well as the auto industry where finding the right opportunities has been challenging. The art is in balancing financial return and climate impact so while we have this top-down impact framework, we work very hard within each of the climate solution buckets to get the allocation right.

Has performance been as expected? 

The corporate fixed income asset class is vast and the opportunity set for climate transition-aligned issuers in our opinion is only growing, particularly in areas like low carbon energy and green utilities. Our experience since launch has reinforced our conviction that allocating to companies leading in the energy transition doesn’t require sacrificing returns.

Our overriding belief is that any impact strategy needs to produce commensurate returns in order to be sustainable longer term.

Why is it important for investors to direct capital to fixed income securities that are having an impact in the climate transition? 

We would attribute this to four factors. 

• Scale: The corporate debt market is one of the largest asset classes globally, with the world’s largest companies among the most active issuers in the public bond market. The sheer scale of public markets means that the largest corporate issuers are responsible for the lion’s share of global pollution — this must be tackled. At Man Group, we maintain a proprietary database, GAIA^[1], covering the ESG credentials of nearly 27,000 companies. Analysing Scope 1 emissions alone, these companies account for 83% of global emissions^[2]. By focusing solely on Scope 1, we eliminate any concern of double counting. Many investors view private markets or real assets as the primary route to achieving impact. While we recognise the importance of deforestation initiatives and private renewable energy deals, we believe that all avenues of the capital markets must be explored in order to have a meaningful chance of decarbonising the global economy. 
• Energy security: As we have seen in the Russia Ukraine war or more recently the Middle East conflict, energy independence is paramount. At the outbreak of the Russia-Ukraine war four years ago, Europe was heavily reliant on Russian gas supplies. Since then, renewables helped play a role in displacing gas demand with renewable electricity generation. Renewables are now an important energy diversification.
• Energy demand: Energy demand is only going up, driven by AI usage, urbanisation in large EM countries such as India, and rising global temperatures increasing the need for cooling infrastructure – for both people and machinery. How we meet this growing energy demand will have significant implications for global carbon emissions. 
• Engagement: Fixed income investors have important leverage on issuers that has yet to be utilised. This is the power to use their funding as a climate transition engagement tool. Fixed income investors might not be shareholders of a company and therefore do not have voting rights, but they are a lifeline in terms of funding for issuers. If fixed income investors were to take leadership on how their funding is being used, they could have a more significant climate impact. Green bonds and other sustainable bond issuance are just some of the tools at investors’ disposal to direct or ring-fence the use of proceeds. This also provides the opportunity for investors to hold issuers accountable to climate KPI triggers.

Can you tell us about some projects your holdings have been involved in? 

We have held green bonds from utility companies financing the transition from coal-fired to green energy in Latin America, where our independent engagement and verification of transition plans gave us the conviction to invest. We have also allocated to clean energy generators in the Asia Pacific region where 100% renewable generation was paired with strong and improving credit fundamentals.

Have you found enough opportunities? Would you like to see more transition bond issuance? 

While we welcome more transition bond issuance, one of the advantages of our strategy is that we are not limited to labelled bonds. We will allocate to green, transition and sustainable bonds, but we also retain the flexibility to invest in conventional bonds where we see the issuer itself making meaningful progress in its transition. With energy demand rising, the opportunity set continues to expand – the utility sector in particular will be one of the most important sectors for society going forward. 

What’s your outlook for this asset class? 

We expect green and transition bond issuance to continue to grow. The UK’s upcoming transition finance framework should sharpen investor focus on climate-related funding. And recent geopolitical tensions in the Middle East have only reinforced the case for diversifying energy supply towards sustainable sources.

Tell us about a lesson you have learned from a mistake made in your investment career

A key lesson I’ve learned is the importance of purpose beyond returns. Earlier in my career, I was focused purely on performance, and while that drive was valuable, I found that in tougher periods it wasn’t always enough to sustain motivation. What I do now combines the pursuit of returns with a larger purpose: allocating capital to companies that are critical to decarbonisation and leading the climate transition. Selecting these companies and balancing risk and return is challenging but rewarding and having that bigger picture keeps me going.

^[1] GAIA (Global Active Issuer Assessment): Across Gaia the Sustainable investment framework methodology uses internal quantitivate and qualitative analysis in order to aggregate different metrics across a number of vendors including S&P Trucost, MSCI and Sustainalytics. Applied at a company level, the methodology comprises of proprietary scoring leveraging the UN Sustainable Development Goals for the SFDR component and a waterfall strategy that spans all relevant PAIs for DNSH.

^[2] https://ourworldindata.org/co2-emissions https://ourworldindata.org/ghg-emissions-by-sector