Key Takeaways From PIMCO’s Sustainable Investing Report 2024
The transition to a resilient, lower-carbon energy system remains a core priority in both global policy and sustainable investing. Increasingly, our clients are seeking investment strategies to enhance their exposure to climate solutions. Their interests span clean energy, energy efficiency and industrial decarbonization, sustainable transportation, and adaptation and resilience to climate physical risks.
In our Sustainable Investing Report, we outline how PIMCO translates our commitment to sustainable investing into strategies and solutions that maximize risk-adjusted returns for all clients, including those seeking sustainable objectives such as climate alignment and resilience, while fostering stable and resilient markets.
Here are some of the key developments outlined in this year’s Report:
Shaping and challenging the market
Fixed income plays a pivotal role in financing the transition to a sustainable economy, with capital that can shape sustainable growth for generations. This ethos is integrated within our research, engagement, and investment activities, as we seek compelling risk-adjusted investment outcomes while promoting long-term economic stability.
Asset managers can play a key role in creating economically resilient opportunities within public markets and, where applicable, alternative investments. For example, as one of the largest investors in green, social, sustainable, and sustainability-linked bonds (GSSS+), PIMCO has a significant and measurable impact on the market.
We actively promote the development of high-quality frameworks for GSSS+ transactions. Our credit research and ESG analysts regularly engage with issuers to encourage effective balance sheet management and to advise on optimal financing structures.
An active edge
Our process for actively managed assets incorporates proprietary ESG frameworks and tools to support informed investment decision-making across asset classes. This includes refined methodologies for specific asset classes and sectors (such as corporate credit, securitized products, and alternative investments), incorporating additional metrics that assess the impact of sustainability factors on the credit quality and pricing of securities.
It also includes tools that empower portfolio managers across the firm to incorporate sustainability factors into the investment process, based on credit recommendations and relative valuations. For clients with mandates that incorporate explicit sustainability objectives, we have incorporated ESG metrics related to these goals across key portfolio analysis and risk management systems.
New frontiers in analysis
Average surface temperatures hit a record high in 2024, exceeding on average 1.5 degrees Celsius compared to pre-industrial levels, according to the World Meteorological Organization. Business models across industries and regions must be proactive in considering the implications. In parallel, energy reliability, security, and affordability are critical economic objectives.
We remain committed to enhancing and expanding our capabilities for managing climate risks, and collaborating with clients to meet their climate-related investment goals and objectives. Key developments that were further utilized in 2024 included a portfolio carbon projection tool, a carbon footprint attribution tool, climate scenario analysis and stress testing, and the reporting of metrics aligned with TCFD and PCAF standards. These analytical capabilities empower us to provide clients with in-depth insights into the risks and opportunities in their portfolios, in addition to climate-related objectives.
PIMCO has made substantial contributions to industry initiatives and advanced its sustainability reporting, evaluation and optimization efforts in forward-looking areas such as engagement progress tracking, decarbonization across asset classes, and biodiversity and natural capital based on biophysical, spatial and financial datasets.
For more on this and other developments, read our latest Sustainable Investing Report.
Disclosures
Environmental (“E”) factors can include matters such as climate change, pollution, waste, and how an issuer protects and/or conserves natural resources. Social (“S”) factors can include how an issuer manages its relationships with individuals, such as its employees, stakeholders, customers and its community. Governance (“G”) factors can include how an issuer operates, such as its leadership, pay and incentive structures, internal controls, and the rights of equity and debt holders.
Sustainable Strategies are strategies with client-driven sustainability requirements. For these strategies, PIMCO actively incorporates sustainability principles (i.e. excluding issuers fundamentally misaligned with sustainability factors, evaluating issuers using proprietary and independent ESG scoring) consistent with those strategies and guidelines. Further information is available in PIMCO’s Sustainable Investment Policy Statement. For information about funds that follow sustainability strategies and guidelines, please refer to the fund’s prospectus for more detailed information related to its investment objectives, investment strategies, and approach to sustainable investment.
ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by PIMCO or any judgment exercised by PIMCO will reflect the opinions of any particular investor, and the factors utilized by PIMCO may differ from the factors that any particular investor considers relevant in evaluating an issuer’s ESG practices. In evaluating an issuer, PIMCO is dependent upon information and data obtained through voluntary or third-party reporting that may be incomplete, inaccurate or unavailable, or present conflicting information and data with respect to an issuer, which in each case could cause PIMCO to incorrectly assess an issuer’s business practices with respect to its ESG practices. Socially responsible norms differ by region, and an issuer’s ESG practices or PIMCO’s assessment of an issuer’s ESG practices may change over time. There is no standardized industry definition or certification for certain ESG categories, for example “green bonds”; as such, the inclusion of securities in these statistics involves PIMCO’s subjectivity and discretion. There is no assurance that the ESG investing strategy or techniques employed will be successful. Past performance is not a guarantee or reliable indicator of future results.
Green Bonds: are a type of bond whose proceeds are used to finance or re-finance new and existing projects or activities with positive environmental impact. Eligible project categories include: renewable energy, energy efficiency, clean transportation, green buildings, wastewater management and climate change adaptation. Social Bonds: are a type of bond whose proceeds are used to finance or re-finance social projects or activities that aim to address or mitigate a specific social issue or seek to achieve positive social outcomes. Social project categories include providing and/or promoting: affordable basic infrastructure, access to essential services, affordable housing, employment generation, food security, or socioeconomic advancement and empowerment. Sustainability Bonds: are a type of bond whose proceeds are used to finance or re-finance a combination of green and social projects or activities. Sustainability bonds with strict accountability of the use of proceeds towards activities that advance the UN Sustainable Development Goals or SDGs may be labeled as SDG Bonds. Sustainability-linked Bonds: are bonds which are structurally linked to the issuer’s achievement of certain sustainability goals, such as through a covenant linking the coupon of a bond to specific environmental and/or social goals. Progress, or lack thereof, toward the aforementioned goals or selected key performance indicators results in a decrease or increase in the instrument’s coupon. In contrast to the green, social and sustainability bonds described above, sustainability-linked bonds do not finance particular projects but rather finance the general functioning of an issuer that has explicit sustainability targets that are linked to the financing conditions of the bond.
All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the author and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world.
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