EXECUTIVE SUMMARY

  • With the world facing significant climate-related challenges, investors should consider positioning portfolios to navigate material climate-related risks, and also potentially to benefit from dedicated policy support globally and increasing consumer and investor demand for climate solutions.
  • Many leaders in both the private and public sectors have already committed to decarbonize and help the transition to a net zero carbon economy.
  • In a bond portfolio context, net zero would mean first and foremost reducing the greenhouse gas emissions associated with the portfolio’s underlying holdings.
  • For clients with decarbonization goals, PIMCO’s Net Zero Framework provides a meaningful and realistic approach to decarbonizing portfolios over time, while engaging and investing in the climate solutions and leaders best positioned to contribute to real-economy emissions reductions.

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The Author

Ryan Korinke

Global Head of Sustainability

Samuel Mary

ESG Research Analyst

Stefan von Martial

ESG Product Strategist

Lorenzo Brunelli

Fixed Income Strategist

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Disclosures

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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.

Unlabeled Green Bonds are bond issued by issuers that have a significant share of their business derived from low-carbon solutions. ESG Labeled Bonds are defined as green, social, sustainable bonds and sustainability-linked bonds. Green Bonds are any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible Green Projects. Social Bonds are use-of-proceeds bonds earmarked to finance new and existing projects or activities with positive social impacts. Sustainability Bonds are use-of-proceeds bonds earmarked to finance new and existing projects or activities with positive environmental and social impacts. Sustainability-Linked Bonds (SLBs) are structurally linked to the issuer’s achievement of climate or broader sustainability goals, such as through a step-up in coupon if key performance indicators (KPIs) are not met. Climate Leaders are issuers, determined by PIMCO, that lead in mitigating carbon emissions and broader environmental externalities across their value chain. There is no standardized industry definition or certification for certain ESG categories.

PIMCO is committed to the integration of Environmental, Social and Governance (""ESG"") factors into our broad research process and engaging with issuers on sustainability factors and our climate change investment analysis. At PIMCO, we define ESG integration as the consistent consideration of material ESG factors into our investment research process, which may include, but are not limited to, climate change risks, diversity, inclusion and social equality, regulatory risks, human capital management, and others.  Further information is available in PIMCO’s Environmental, Social and Governance (ESG) Investment Policy Statement.

With respect to comingled funds with sustainability objectives (“ESG-dedicated funds”), we have built on PIMCO’s 50-year core investment processes and utilize three guiding principles: Exclude, Evaluate and Engage. In this way, PIMCO’s ESG-dedicated funds seek to deliver attractive returns while also seeking to achieve positive ESG outcomes through its investments. Please see each ESG-dedicated fund’s prospectus for more detailed information related to its investment objectives, investment strategies and approach to ESG.

This information contains examples of the firm’s internal ESG engagement and research capabilities. The data contained within the report may be stale and should not be relied upon as investment advice or a recommendation of any particular security, strategy or investment product. In selecting case studies, PIMCO considers multiple factors, including, but not limited to, whether the example illustrates the particular investment strategy being featured and processes applied by PIMCO to making investment decisions. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The issuers referenced are examples of issuers PIMCO considers to be well known and that may fall into the stated sectors. References to specific issuers are not intended and should not be interpreted as recommendations to purchase, sell or hold securities of those issuers. PIMCO products and strategies may or may not include the securities of the issuers referenced and, if such securities are included, no representation is being made that such securities will continue to be included.

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. REITs are subject to risk, such as poor performance by the manager, adverse changes to tax laws or failure to qualify for tax-free pass-through of income. 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.

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