I'd love to see this study / piece taken up by the financial sector's 'pink paper' - The Financial Times! Just putting it out there. Unsurprised by your findings and, as always, respect to your constant reminders that this is 'our shit'.
Thank you, Stefan! I'm glad it resonates. It's fun to think about what would happen if each person just followed one fund in their portfolio and shared what they found. It's totally doable and free for anyone to do, though it does take a little persistence (!). We keep going and we do what we can. In any case, thanks again for reading and for the feedback <3
P.S.: I believe the additional percentage figures highlighted in the Epilogue are coupon rates, i.e. those line items would indicate holdings of corporate bonds, not shares.
Thanks Stefan! That's an interesting observation. Just to make sure I follow in plain English, are you suggesting that, for example, NEI's Global Sustainable Balanced fund has to bonds with the Inter-American Development Bank, one which will pay an annual amount equal to 0.34%, the other 3.5%, each year until the bond matures?
We can't see how much the bond is for, nor when it will mature, but I want to make sure I follow your guess here.
And to be even more granual, these bonds entail moneys that this fund have placed under management of the Inter-American Development Bank essentially as loans (one form of which is a bond). Have I got that right?
(I still haven't heard back from NEI yet. I'll keep folks posted here if/when I do.)
Hi Lorraine, so I did some more digging, using one of the largest holdings outside of NEI's other fund and "Cash and Equivalents" on the list as the example:"International Bank for Reconstruction & Development 3.875%".
Unfortunately, the table on NEI's main overview page for the fund does not specify the bond (no ISIN, no maturity date).
Following the link to the fund's "Full PDF Report", I end up with a two-page PDF file. Still no details on individual bond holdings, but at least the file confirms that the NEI fund has a fairly large percentage (38.5%) of its holdings in fixed income, spread out over 227 individual bond holdings. Tracking each of these down would take an awfully long time, but maybe there is a way to identify the specific IBRD bond with the 3.875% coupon.
In NEI fund's resources section, I find the link to a slightly more detailed file with "Fund Facts". Here, the IBRD bond is at least listed with a maturity date (2030-02-14). So with that, I am at last able to identify the particular bond NEI has invested in. The press release explains that "World Bank bonds support the financing of programs that further the Sustainable Development Goals (SDGs). World Bank bonds are aligned with the Sustainability Bond Guidelines published by the International Capital Market Association and as such support the financing of a combination of green and social, i.e., "sustainable development" projects, programs and activities in IBRD member countries as described in the World Bank Sustainable Development Bond Framework." A bit further down, the disclaimer states that "net proceeds of the bonds described herein are not committed or earmarked for lending to, or financing of, any particular projects or programs, and returns on the bonds described herein are not linked to the performance of any particular project or program."
So I take a look at the "World Bank Sustainable Development Bond Framework". This is what the "Reporting" section has to say on the allocation of this (and all other IBRD) bond proceeds:"The World Bank is committed to producing an *annual impact report within one year following the close of the fiscal year (June 30) describing the Operations supported by the financing generated by World Bank bonds issued during the previous fiscal year.* This report provides information on allocation of bond proceeds and reports on results across a range of measurable outcomes, highlighting a selection of individual project development indicators. Impact reports are available on the World Bank Treasury website: http://treasury.worldbank.org." (Emphasis mine.)
As the bond we are interested in was only issued in February 2023, it looks like we will have to wait until the second half of 2024 to learn what projects were financed with this particular bond.
A look at their 2022 Impact Report shows, however, that IBRD is not going to issue a report specifically for this bond's proceeds anyway. So this latest available report should be reasonably close to the one they will be publishing later this year. You can download the full impact report here and a list of all 680 projects they are currently supporting here. For each of these projects, specific "Target Results" are listed.
Initially, this felt like venturing further down the rabbit hole – but maybe there is a glimmer of hope that by digging all the way down, one may emerge into daylight again: According to NEI's Fund Facts file, the NEI Global Sustainable Balanced Fund had an "annual compounded rate of return of 3.7% over the past 10 years." That is actually below the IBRD bond's coupon, i.e. the IBRD's interest payments are slightly higher. So from an impact perspective, this might be a better alternative, while still providing reasonable returns.
P.S.: NEI's 'Full PDF Report' also states that the fund provides "Measurable positive environmental, social impact across fixed income and equity holdings" - without, however, listing actual measurements of impacts or at least giving any examples of what those impacts might be.
Under "Approach to Responsible Investing", the document lists "Active ownership" as one of four elements and claims that the NEI ESG team engaged Ball Corp, Apple, Bank of America, "and more".
This appears to be the case, but what limited information there is needs to be pieced together from three quarterly "Active Ownership Reports":
- Apple was engaged in Q1/2023 on Equitable Compensation
- Bank of America in Q2/2023 on Deforestation, and
- Ball Corporation in Q3/2023 on Impact and dependency assessment, Circularity
Results of these engagements appear to be mostly limited to enhanced ESG disclosures and 'commitments' to concepts like Net Zero. I did not find any hard figures on the impact of these engagements, however.
As Stefan already uncovered, the roughly 40% of NEI Global Sustainable Fund that isn't invested in NEI Environmental Leaders (Equity only) is fixed income in the form of bonds (not shares of companies) and the percentages you see are coupon rates.
It is not unusual for Mutual Fund companies to create "Equity/Growth" versions (NEI Environmental Leaders) and "Balanced" versions (NEI Global Sustainable) of their funds using an existing fund with additional fixed income holdings. I agree that it leaves most investors scratching their heads!
Advisors SHOULD be able to answer all of these questions, but they all too often fall short of their Know-Your-Product (KYP) due diligence. As you have pointed out, however, the bigger issue is ESG as a concept in the capital markets and its underlying contradictions.
Thank you Evelyne! Really appreciate the colour commentary here. I am indeed very tempted to run down that ETF trail! Going to publish the "sustainable fashion" piece first but consider me officially nibbling the bait :-)
Oh friend, I <3 this! This is one of the issues (of kajillions!) with the industry... Your advisor can't tell you where your money is being invested because, they themselves, don't know (failure to complete adequate KYP and suitability due diligence. IE - they are not acting in your (investors) best interest. In Canada, that IS part of their duty of care. All part of my doctoral work...
ESG specifically is greenwashing. These funds LIE to their investors along with often being more expensive to hold (doing "environmental" stuff is expensive) with meh returns on the investment.... So investors are getting it "up the bum" twice. How is that ethical? It's not. Following the money is the only way to the source of truth.
PS - thanks for keeping your side of the street clean. <3
I'd love to see this study / piece taken up by the financial sector's 'pink paper' - The Financial Times! Just putting it out there. Unsurprised by your findings and, as always, respect to your constant reminders that this is 'our shit'.
Echoing that!
Amazing piece! Wish we could replicate this investigation across the countless ESG offerings out there.
Thank you, Stefan! I'm glad it resonates. It's fun to think about what would happen if each person just followed one fund in their portfolio and shared what they found. It's totally doable and free for anyone to do, though it does take a little persistence (!). We keep going and we do what we can. In any case, thanks again for reading and for the feedback <3
P.S.: I believe the additional percentage figures highlighted in the Epilogue are coupon rates, i.e. those line items would indicate holdings of corporate bonds, not shares.
Thanks Stefan! That's an interesting observation. Just to make sure I follow in plain English, are you suggesting that, for example, NEI's Global Sustainable Balanced fund has to bonds with the Inter-American Development Bank, one which will pay an annual amount equal to 0.34%, the other 3.5%, each year until the bond matures?
We can't see how much the bond is for, nor when it will mature, but I want to make sure I follow your guess here.
And to be even more granual, these bonds entail moneys that this fund have placed under management of the Inter-American Development Bank essentially as loans (one form of which is a bond). Have I got that right?
(I still haven't heard back from NEI yet. I'll keep folks posted here if/when I do.)
Hi Lorraine, so I did some more digging, using one of the largest holdings outside of NEI's other fund and "Cash and Equivalents" on the list as the example:"International Bank for Reconstruction & Development 3.875%".
Unfortunately, the table on NEI's main overview page for the fund does not specify the bond (no ISIN, no maturity date).
[Overview page: https://www.neiinvestments.com/funds/NEI-Global-Sustainable-Balanced-A.html]
Following the link to the fund's "Full PDF Report", I end up with a two-page PDF file. Still no details on individual bond holdings, but at least the file confirms that the NEI fund has a fairly large percentage (38.5%) of its holdings in fixed income, spread out over 227 individual bond holdings. Tracking each of these down would take an awfully long time, but maybe there is a way to identify the specific IBRD bond with the 3.875% coupon.
[Full PDF Report: https://doc.morningstar.com/LatestDoc.aspx?clientid=neimps&key=70b0ea8c8eaa01df&documenttype=124&investmentid=F0CAN05N00]
In NEI fund's resources section, I find the link to a slightly more detailed file with "Fund Facts". Here, the IBRD bond is at least listed with a maturity date (2030-02-14). So with that, I am at last able to identify the particular bond NEI has invested in. The press release explains that "World Bank bonds support the financing of programs that further the Sustainable Development Goals (SDGs). World Bank bonds are aligned with the Sustainability Bond Guidelines published by the International Capital Market Association and as such support the financing of a combination of green and social, i.e., "sustainable development" projects, programs and activities in IBRD member countries as described in the World Bank Sustainable Development Bond Framework." A bit further down, the disclaimer states that "net proceeds of the bonds described herein are not committed or earmarked for lending to, or financing of, any particular projects or programs, and returns on the bonds described herein are not linked to the performance of any particular project or program."
[Fund Facts: https://www.neiinvestments.com/content/dam/nei/docs/en/regulatory/fund-facts/ff-064-en.pdf
Specific IBRD Bond: https://www.worldbank.org/en/news/press-release/2023/02/07/world-bank-prices-7-year-usd-5-billion-sustainable-development-bond#:~:text=P.%20Morgan.-,Transaction%20Summary,-Issuer%3A
SBD Framework: https://thedocs.worldbank.org/en/doc/43b360bfda1e6e5b8a094ef2ce4dff2a-0340012021/original/World-Bank-IBRD-Sustainable-Development-Bond-Framework.pdf]
So I take a look at the "World Bank Sustainable Development Bond Framework". This is what the "Reporting" section has to say on the allocation of this (and all other IBRD) bond proceeds:"The World Bank is committed to producing an *annual impact report within one year following the close of the fiscal year (June 30) describing the Operations supported by the financing generated by World Bank bonds issued during the previous fiscal year.* This report provides information on allocation of bond proceeds and reports on results across a range of measurable outcomes, highlighting a selection of individual project development indicators. Impact reports are available on the World Bank Treasury website: http://treasury.worldbank.org." (Emphasis mine.)
As the bond we are interested in was only issued in February 2023, it looks like we will have to wait until the second half of 2024 to learn what projects were financed with this particular bond.
A look at their 2022 Impact Report shows, however, that IBRD is not going to issue a report specifically for this bond's proceeds anyway. So this latest available report should be reasonably close to the one they will be publishing later this year. You can download the full impact report here and a list of all 680 projects they are currently supporting here. For each of these projects, specific "Target Results" are listed.
[2022 Impact Report: https://treasury.worldbank.org/en/about/unit/treasury/impact/impact-report
Full Report: https://thedocs.worldbank.org/en/doc/33420eed17c2a23660b46dc208b01815-0340022023/original/World-Bank-IBRD-Impact-Report-FY22.pdf
Table of Projects: https://thedocs.worldbank.org/en/doc/dd101311b0cdc3f5afa9c217cd650da9-0340022023/original/FY22-WorldBank-IBRD-SDB-Project-Level-Reporting-Tables.pdf]
Initially, this felt like venturing further down the rabbit hole – but maybe there is a glimmer of hope that by digging all the way down, one may emerge into daylight again: According to NEI's Fund Facts file, the NEI Global Sustainable Balanced Fund had an "annual compounded rate of return of 3.7% over the past 10 years." That is actually below the IBRD bond's coupon, i.e. the IBRD's interest payments are slightly higher. So from an impact perspective, this might be a better alternative, while still providing reasonable returns.
P.S.: NEI's 'Full PDF Report' also states that the fund provides "Measurable positive environmental, social impact across fixed income and equity holdings" - without, however, listing actual measurements of impacts or at least giving any examples of what those impacts might be.
Under "Approach to Responsible Investing", the document lists "Active ownership" as one of four elements and claims that the NEI ESG team engaged Ball Corp, Apple, Bank of America, "and more".
This appears to be the case, but what limited information there is needs to be pieced together from three quarterly "Active Ownership Reports":
- Apple was engaged in Q1/2023 on Equitable Compensation
- Bank of America in Q2/2023 on Deforestation, and
- Ball Corporation in Q3/2023 on Impact and dependency assessment, Circularity
[Active Ownership Reports: https://www.neiinvestments.com/responsible-investing/responsible-investing-expertise/reports/active-ownership.html]
Results of these engagements appear to be mostly limited to enhanced ESG disclosures and 'commitments' to concepts like Net Zero. I did not find any hard figures on the impact of these engagements, however.
I think I'll stick with the IBRD bonds... ;-)
What an incredibly rich response, Stefan -- thank you! I'm glad it's not just me who finds it a little circuitous!
Hi Lorraine,
As Stefan already uncovered, the roughly 40% of NEI Global Sustainable Fund that isn't invested in NEI Environmental Leaders (Equity only) is fixed income in the form of bonds (not shares of companies) and the percentages you see are coupon rates.
It is not unusual for Mutual Fund companies to create "Equity/Growth" versions (NEI Environmental Leaders) and "Balanced" versions (NEI Global Sustainable) of their funds using an existing fund with additional fixed income holdings. I agree that it leaves most investors scratching their heads!
Advisors SHOULD be able to answer all of these questions, but they all too often fall short of their Know-Your-Product (KYP) due diligence. As you have pointed out, however, the bigger issue is ESG as a concept in the capital markets and its underlying contradictions.
Now, if you want a fun experiment, could you please do a piece on ESG ETFs (Exchange-Traded Funds). To pick on one of the big guys, you could start here: https://www.rbcgam.com/en/ca/learn-plan/types-of-investments/what-are-esg-etfs/detail
I think you'll find yourself knee deep in doodoo quickly!
Thank you Evelyne! Really appreciate the colour commentary here. I am indeed very tempted to run down that ETF trail! Going to publish the "sustainable fashion" piece first but consider me officially nibbling the bait :-)
Grateful for your insights!
Oh friend, I <3 this! This is one of the issues (of kajillions!) with the industry... Your advisor can't tell you where your money is being invested because, they themselves, don't know (failure to complete adequate KYP and suitability due diligence. IE - they are not acting in your (investors) best interest. In Canada, that IS part of their duty of care. All part of my doctoral work...
ESG specifically is greenwashing. These funds LIE to their investors along with often being more expensive to hold (doing "environmental" stuff is expensive) with meh returns on the investment.... So investors are getting it "up the bum" twice. How is that ethical? It's not. Following the money is the only way to the source of truth.
PS - thanks for keeping your side of the street clean. <3
Thanks Lorraine for being prepared to wade into all this sh*t on our behalf.