The case for transition strategies in credit

10 minute read

Download full paper (0.5mb)

Here we examine the extent to which credit investment strategies that target decarbonisation outcomes can produce comparable, and often superior, returns relative to common benchmarks.

For this analysis, we contrast two distinct transition credit approaches — a passive carbon-efficient strategy and an active approach using our own Co₂liseum model portfolio. Both target lower greenhouse gas emissions exposure in corporate bond portfolios. The findings are striking: both strategies outperform their respective benchmarks, with the passive strategy generating 16.4bps of annualized excess returns and the active strategy delivering 168bps.

While both the passive and active strategies differ in structure and geographical focus, they consistently demonstrate that lower-carbon portfolios can deliver superior risk-adjusted returns, even in the face of political headwinds to the energy transition. Sharpe ratios above 1 for both approaches further reinforce the robustness of these results.

Learn more about the active CMP strategy by exploring the resources here.