The CT UK Social Bond Fund has pioneered impact investing for fixed income, through investments that deliver positive social outcomes and a financial return consistent with the risk profile of the broad UK investment grade credit market. We talk to portfolio manager Tammie Tang.
You must be proud to celebrate the 10th anniversary of the CT UK Social Bond Fund, especially as very few investors can evidence a similar track record for impact fixed income – in terms of both social impact and financial return. How do you feel about the achievement and the path ahead?
We’re tremendously proud. When the fund incepted in December 2013, we wanted to better help address the issues of rising deprivation, high unmet needs and material inequality in our society. We wanted to contribute capital, via the bond market, to support solutions to these growing social issues. Since then we have proven it is possible to invest and support capital across a spectrum of important social outcomes, including housing, health, education and employment, and financial inclusion.
2024 marks not just the fund’s 10th anniversary, but also my 12th year at Columbia Threadneedle Investments. I have witnessed the fund’s steady growth and how we have been supported and guided by the strength of expertise from our fundamental research teams, as well as by our Social Advisory Committee members and our key partner, The Big Issue1. While it is a privilege to now lead the fund and our wider social bond franchise, more than ever we remain focused on the job ahead and will continue to insist – including through our engagement work – on the role that the bond market should play in addressing our social issues.
Through the lens of an impact bond investor focused on social outcomes, what lessons have you learnt?
Why don’t impact investors have a higher allocation to fixed income?
I think one stumbling block is that there is not yet a good understanding of the risk and return profile of impact fixed income. Our belief – and our experience – is that we can build socially impactful portfolios, but in a way that replicates and delivers the risk/return profile of a broad credit index. One reason we have managed to do this is due to sufficiently deep, fundamental research that applies at both issuer and issue level, regarding both financial credit strength and strength of social outcomes funded. For instance, the UK Social Bond Fund’s effective duration of 3.67 compares with 3.68 for the BofA Merrill Lynch 1-10 Year Sterling Non-Gilt Index; the yield to maturity is 5.26% against 4.88% for the index; and an average credit rating of A compares with A+4.
How do you measure and report the fund’s outcomes?
We apply the principle of deep research, not just at the issuer level but also at the bond or “use-of-proceeds” level, to evidence and map the outcomes and regions supported by each bond investment. Our depth of bond level research also means we can map the fund’s impact against a range of industry-accepted measures, including the UN SDGs and Impact Management Norms, whereby we evidence the majority of our investments’ contribution to solutions. Although deep research is simple, it is a high bar.
What has the fund achieved in terms of social outcomes?
At the end of 2023, the UK Social Bond Fund had grown to £396 million, which was invested in 185 bonds from 127 issuers and dedicated to positive social and environmental impacts5. It is diversified across eight different outcome categories, of which the biggest were Utilities and Environment, Transport and Communications, Affordable Housing and Property, and Health and Social Care. For example, the UK is in the grip of a housing crisis with a severe lack of affordable housing. The fund holds bonds from 20 housing associations that own and manage 770,886 regulated properties. We added two new housing association bonds in 2023, both of which are developing new affordable homes, and many of our housing associations are improving their policies to enhance financial literacy and community integration among tenants. You can read more about this and other types of impact in the annual report that is produced for the fund6.
What does the future hold?
The fund has pioneered social bond investing, but we want the bond market to do more. We see part of our job as helping to grow the market so that it can help tackle the huge challenges we face. This means that through engagement and influence the impact of our activities goes beyond the specific investments made by our funds. We are encouraging the growth of the market as a whole, as well as the social intensity of the bonds within it.
