MetLife Investment Management's Katie House and Todd Howard discuss proprietary research, portfolio construction, and the evolution of the labelled-bond market as they seek to balance mainstream fixed income returns with measurable environmental and social impact.

Environmental Finance: Can you give us some background on your labelled bond portfolios?

Katie House: We run two sustainability strategies at MetLife Investment Management (MIM). One is our Transition strategy, which is focused on decarbonisation. The other is our labelled-bond strategy called 'SPECTRUM', which invests predominantly in green, social and sustainable labelled bonds. We launched our first SPECTRUM fund in 2017, and this is the strategy for which we have won the Best sustainability reporting by an asset or fund manager: large (fixed income) category at the Environmental Finance Sustainable Investment Awards.

We run a number of SPECTRUM portfolios; a mixture of funds and separately managed accounts. All of these have the objective of achieving mainstream returns while supporting the achievement of the Paris Agreement and the UN Sustainable Development Goals (SDGs). These portfolios invest where we can be confident that the use of proceeds of bonds held will support environmentally and socially beneficial projects and activities, from responsible issuers.

EF: How do you anchor that goal of mainstream returns to the demands of meeting those sustainable development goals?

KH: This is delivered through the strength of our dedicated sustainability research function with deep domain expertise, complemented by our extensive credit research capability. The sustainability team brings specialised experience and backgrounds in sustainability, with a long track record of managing sustainability-focused strategies, working alongside credit analysts to provide differentiated insights. Fully integrated within the broader investment platform, this combined approach ensures a robust research process that covers both the credit and sustainability fundamentals of any potential investment.

Our sustainability team defines the investable universe, credit research provides their view and then the portfolio managers (PMs) decide what they want to bring into their portfolios, based on investment criteria. It removes pressure on the PMs because they can focus on constructing portfolios that deliver returns. This also ensures the impact aspects are reviewed by the sustainability experts.

Todd Howard: We're looking at what is important to investors and where there are a lot of options. What the investment team and I do is make sure that we get the investment returns that we need. Our main objective is to deliver the returns investors seek without compromising on the impact.

EF: The labelled bond market has changed a lot over the time you've been managing these portfolios. Have you had to adjust your approach accordingly?

TH: The first thing to understand is that this market has grown tremendously. It's more than quadrupled in size over the past five or six years. That's not just with the number of issuers, but also the size of the bonds offered. There are municipal bonds out of the US and securitised products that allow you to play in the US mortgage-backed space. You've also got the opportunity to invest in a variety of different currencies, credit quality, and securitisations across the currency landscape. That breadth allows for more diversified, flexible portfolio construction.

KH: We've also grown a lot on the sustainability side. We had four people in the team six years ago; now, it's nine. Because of that growth in personnel, we can dedicate analysts to specific sectors. The workload has changed, too—in the early days, we were reviewing everything that was issued. That's not something that we need to do anymore. Now we prioritise depending on what's interesting to potentially buy in the portfolios.

EF: How have your research methods adapted over the years?

KH: When it comes to the methodology, that's always been proprietary and developed internally. But as the market has evolved, we have external recommendations to consider, such as the EU Taxonomy. That was an important milestone for us and the sector. We don't specifically commit that all investments are EU Taxonomy aligned, but we remain aware of the thresholds it recommends.

EF: Your portfolio impact reporting stands out as detailed and thorough. How have you achieved that?

KH: Right now, we're on the ninth iteration of our impact reporting. And, yes, it has developed over the years! Data collection has always been the challenge. That's something that we've done ourselves because we've never been able to rely on an off-the-shelf product. We source data from issuers' reporting and pull the data points that we need into a data management system that we've built in-house to aggregate to portfolio results. Because we do it that way, we can use the data at the most granular level it's offered. For some issuers, that could be as granular as the individual project level. We also use our deep sustainability expertise to evolve the reporting methodologies we use when needed.

EF: You mention that the ability to gather project-level information is one of your strengths. Can you give some examples of projects you've been particularly pleased to support?

KH: We see a lot of labelled bonds that have allocations to renewable energy projects. A representative example is an onshore wind project in Oklahoma with 103 wind turbines and a combined capacity of 287 megawatts. The project is connected to the transmission grid and is projected to power approximately 85,000 homes in Oklahoma.

We're also pleased to support some projects in the conservation space. For example, our SPECTRUM portfolios hold one of the World Bank's outcome bonds, known as the 'Rhino Bond'. It focuses on the preservation and conservation of black rhino populations in South Africa through measures such as water provision, anti-poaching measures and fencing. Because it's an outcome bond, the return depends on the success of the conservation measures and impact on the rhino population.

At the end of 2024, the World Bank reported an 8% increase in the population at target sites. That's in the upper band of what they were aiming for. This is also a great example of how the fixed income market can support more innovative structures, with verifiable impact.

Katie House is senior director for sustainability research for public fixed income and Todd Howard is head of fixed income for the EMEA region MetLife Investment Management.

For more information, see: Global Bonds | MetLife Investment Management