Sustainable Investment Awards 2022

ESG fixed income fund of the year, global: Fidelity International

Fidelity International secured the global ESG fixed income fund of the year award for its $73 million Sustainable Reduced Carbon Bond Fund, driven by its focus on delivering 'real world' carbon emission reductions.

The Sustainable Reduced Carbon Bond Fund assesses companies in order to seek out issuers that are adopting decarbonisation practices faster than their peers as well as firms from high emissions sectors and climate laggards from other sectors that have clear decarbonisation strategies and targets.

A Fidelity spokesperson told Environmental Finance the fund has focused on this 'active-led' approach in order to deliver real world reductions in carbon emissions by supporting the climate transition.

"It can be tempting to build a systematic data screen or a low carbon index that would filter for issuers with the lowest carbon footprints," the spokesperson said. "This is a relatively simple way of sustainable investing and suits many investors. However, this passive-led approach has its limitations. It's a fairly blunt method that cannot more finely tailor portfolios."

Fidelity said this passive-led approach can result in "unbalanced portfolios" which exclude certain companies or industries, and "bizarre anomalies" in which such funds increase the portfolio weight of companies with deteriorating climate performance scores or carbon intensity.

"The active approach builds on the data sources used in passive investing by incorporating additional information that may be difficult to quantify, such as the credibility of decarbonisation strategies, the commitment of management to net-zero, the competitive landscape and the regulatory backdrop," the spokesperson said. "Active climate investors can also engage and counsel companies towards transition."

In the future, Fidelity is increasingly considering how it can actively integrate topics such as biodiversity and a 'just transition' to net zero into its investment process.

Fidelity is also keen for more investors to "embrace" the need for climate transition in their strategies and to actively support it.

"Currently transition is seen as more difficult to do and many investors avoid tackling the issue as a result," it said.