Anthropocene Fixed Income Institute

 We find robust outperformance of a low carbon credit portfolio versus its traditional benchmark (36bp p.a., 1.51 Sharpe) using a robust out-of-sample and apples-for-apples universe comparison. The analysis is based on the S&P Dow Jones IG corporate bond indices in its traditional and carbon efficient versions. The carbon efficent index was constructed in 2018 and is based on our ECOBAR model.

( 27 Jan 2021)

With the hard rally in energy prices, low carbon tilted credit - as measure by our ECOBAR application in S&P bond indices - has underperformed, but at a modest pace. We find that especially on a duration neutral basis, the underperformance is hitting support levels, suggesting relatively attractive entry levels.

(5 May 2022)

Oil prices have quintupled since the lows in 2020 which normally would mean strong outperformance of carbon intensive credits. However, our ECOBAR based metrics indicate just slight underperformance of low carbon credits during this time, after having strongly outperformed in previous years.

The September sell-off in equities and rates appears to only have very modest effects on the relative performance of the ECOBAR low carbon credit strategy. We analyse correlations between that index and relevant macro markets.

 Low carbon credit relative returns have  recovered after an extensive oil price rally between 2020Q2 and 2021Q1.  Excess return over 6 years is 32bp per annum or 1.9% cumulatively, with a  Sharpe ratio of 1.4.

(1 Sep 2021)

Reasonably, after an oil price rally of almost  100% in 12 months, we would expect credits with higher relative  exposure to carbon emissions to underperform. But our analysis suggest  that the opposite actually is true: even with a steep rise in oil  prices, relative low carbon bonds outperformed higher carbon emitting  ones.

(21 April 2021)

 We regularly review low carbon credit performance vs traditional credit using a strict apples-for-apples comparison methodology based on ECOBAR. This update is for 2020 Q3.
(13 October, 2020)