Affirmative Investment Management (AIM) publishes first impact report for LO-Funds Global Climate Bond Fund

Affirmative Investment Management (AIM), has released the first annual impact report for the LO Funds – Global Climate Bond. The report details over 1000 projects and initiatives that were fully or partially supported by the impact bonds the Fund invests in. The executive summary of the report can be found here.

The Fund, launched as a result of a partnership between Lombard Odier Investment Managers and AIM in March 2017, is designed to enable investors to benefit from the transition to a greener economy and aims to deliver measurable environmental and social impact in addition to financial performance. In 2017, 92 countries received impact bond commitments and disbursements from the Fund, which invested in support of all 17 Sustainable Development Goals.

Our impact report is an important component of the Fund for investors, evidencing the positive outcomes that result from their capital. The findings, stemming from a portfolio of mainstream fixed income investments, show that a pure play focus to investing, founded on deep analysis and engagement, can be beneficial to both investors and to broader society. The impact bond market has grown 173% on an annualised basis since 2007. As the market and the Fund size increases, so will the positive impact.

— Dr Judith Moore, Partner, Verification & Impact, AIM

AIM surveyed impact bond issuers to collect data on their disbursements, to determine impact indicators across the portfolio. 87% of the Fund’s impact bond issuer disbursements were dedicated to climate change mitigation activities associated with reducing greenhouse gas (GHG) emissions.  The Fund supported the avoidance of 78,431 CO2e per annum, the equivalent to taking 16,795 passenger vehicles off the road for a year, and low carbon transport in 26 countries, with capacity equivalent to 2 million passengers annually.

Other measurable portfolio-weighted impacts highlighted in the report includes:

  • Energy: Investing in energy solutions is critical for meeting the Paris Agreement and decarbonising sustainable development. Access to affordable, low carbon and reliable energy is a sustainable development priority reflected by Sustainable Development Goal (SDG) 7. The Fund supported 75 MW[1] of renewable energy installed capacity and over 244,450 MWh[2] of electricity generated annually, enough to power 19,644 homes in the US for 1 year.
  • Infrastructure: Current levels of investment into improving the energy efficiency of buildings is not on track to achieve a ‘2 degree scenario’. According to the International Energy Agency (IEA), buildings account for up to 40% of direct and indirect greenhouse gas emissions and up to 55% of global electricity demand. The Fund invested in issuers who made disbursements for green buildings in over 30 countries, resulting in 5,670 m² of area built to higher levels of energy efficiency.
  • Water resource management: As populations grow and natural environments become degraded, ensuring sufficient and safe water supplies is becoming more challenging. Promoting water quality and efficiency provides multiple benefits, from improved public health and food security to increased resilience against climate change and greenhouse gas emissions mitigation. The Fund’s impact bonds have supported 6,893 m³ in wastewater being treated daily – the equivalent to more than two Olympic-size swimming pools per day.
  • Financial inclusion and gender: The Fund invested in impact bonds that made      disbursements to support SME loans (including microloans) to marginal groups or those in underperforming labour markets. A significant component within the Fund-supported SME loans were those to women-owned businesses (those with at least 51% owned by a woman/women, minimum 20% owned by women with at least one female senior executive, or women holding 30% or more seats on any board of directors). The Fund supported 5,687 SME loans in 17 countries, 4,713 of which were to women-owned businesses in emerging markets. 

About the fund

  • The Fund is a diversified investment grade portfolio seeking to simultaneously deliver a low carbon and climate-resilient economy and mitigate some of the effects of climate change, while targeting a higher yield than a typical investment grade portfolio with lower turnover
  • The portfolio purchases multi-currency denominated green, sustainable or social use-of-proceeds bonds and pure play bonds – only investing in impact bonds verified under AIM’s proprietary SPECTRUM Bond® framework
  • The Fund seeks a higher yield than the Bloomberg Barclays Global-Aggregate Index with comparable credit quality.

[1] MW refers to megawatts, which is equivalent to 1,000 kilowatts. This measures the maximum output of electricity that a generator can produce under ideal conditions at full capacity, representing the renewable energy power potential of a project.

[2] MWh refers to megawatt hours. To understand the unit of MWh: a wind turbine with a 1.5 MW capacity, running at an average 30% capacity for 24 hours over 365 days, will generate 1.5 x 0.3 x 24 x 365 = 3,942 MWh of electricity per annum.