Local Government Super, the A$6bn (€4.8bn) fund for government employees in New South Wales, has awarded an initial A$170m mandate to an innovative sustainable global government bond fund developed with Melbourne-based boutique Omega Global Investors.
The new strategy explicitly incorporates environmental, social and governance (ESG) risk analysis into the process for selecting bonds issued by global governments and agencies.
A key feature is a specific allocation of up to 15% to ‘green bonds’ issued by agencies like the World Bank, European Investment Bank or Asian Development Bank. LGS says its members’ funds go explicitly to fund certified green projects such as wind farms in China, Turkey, Egypt and Austria, Thailand’s first major solar power project and Colombia’s sustainable urban transport system. As at May 10 the total weighting to green bonds was 5.1%, which will steadily increase as new issuance occurs.
LGS has published a 22-page investment paper outlining the rationale for the new investment (link), which has been in place since April this year. The strategy is currently performing well relative to benchmark.
Macro themes feeding in to the strategy include climate change, resource scarcity, population shifts and financial market stability.
LGS says that, given these risks, one option was to cut its exposure to government bonds.“Alternatively we could steer the portfolio towards countries with lower debt levels; better regulations; less corruption; better key environmental and social indicators and greater resilience and capacity to deal with current and future mega ESG challenges.”
The fund will be managed by an investment team co-led by Mathew McCrum and Andrew Gruskin at Omega, which is 19.9% owned by Macquarie Global Investments.
A specific allocation of up to 15% to climate bonds
LGS is one of Australia’s leading sustainable investors with more than A$3bn invested in responsible strategies. UN-backed Principles of Responsible Investment (PRI) signatory LGS is a member of the Investor Group on Climate Change and has a stake in Australian ESG research and engagement firm Regnan.
“The strategy is leading edge – in fact we believe it to be an Australian first, and one of just a handful created around the world,” said McCrum, who is Omega’s Director of Investments.
McCrum added: “It is possible to construct high quality, well-diversified bond portfolios that also deliver a strong sustainability dividend above benchmark.”
LGS Chief Investment Officer Craig Turnbull said: “The sustainable global government bond strategy is a great example of our principles in action.” Link