In a world marked by increasing economic inequality and environmental challenges, the need for innovative investment solutions that address both financial returns and societal impact has become ever more apparent.
"The country itself could be quite rich but if there is a big spectrum of inequality, then you will typically find worse outcomes overall for health, wellbeing, and satisfaction. Those same studies prove that with a narrowing of that gap, the outcomes improve." says Tammie Tang, the portfolio manager leading Columbia Threadneedle Investments' social bond strategies.
For example, in the UK, wealth is spread unevenly between the North and the South. The South East is the wealthiest region with a median total household wealth of £503,400; in the North East that number falls to £168,500 per household (1). This stark inequality is reflected in the disparity in school spending in both regions, with London schools receiving 9.7% more funding that schools in the north (2).
Falling education spending and regional inequality lead to not only academic underachievement, but children born into the poorest fifth of households are 13 times more likely to experience poor health outcomes by the age of 17 (3).
With inequality being the focus rather than a country's overall wealth, it is no surprise that Europe (including the UK) and North America receive 45% and 28% respectively of the funding allocated in the CT Global Social Bond Fund (4).
Looking to deliver maximum impact is one of the reasons why Columbia Threadneedle is going global with its new strategy. A key benefit to reaching further is the global investing universe gives scope for broader social impact as well as financial returns.
Tang explains that with the global opportunity set the pool of bonds at their disposal jumps from roughly $0.5 trillion in the UK to $15 trillion globally, which represents a jump from a few hundred issuers to nearly 4,000.
Part of the opportunity in going global comes with its added complexity. Each global issuer on average has around five bonds outstanding, which results in there being many different bonds to invest in. These bonds can feature different maturities, capital structures, and covenants which affect pricing and create interesting investment opportunities.
Tang says: "The fund looks like a conventional fund. Risk-wise, it is predominantly European, US, and UK focused; the latter two we are among the leaders in having the most unequal societies. At its core, it's a high-grade fund, so eligibility in terms of global or more emerging market type of regions is open so long as it meets that criterion."
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Sources.
(2) ft.com
(4) Columbia Threadneedle Investments, as at 31 March 2023.
