Rising interest rates have made bonds more attractive than they have been in more than a decade, and fixed income can help hedge against market and economic uncertainty. Fixed income has the potential to help you achieve your financial goals, but it can also help you achieve your environmental and social goals at the same time.
If you’re concerned about California wildfires, for example, you can consider investing in municipal bonds that finance firehouses or mortgages for firefighters. If you care about education, your fixed income investments can help finance the construction and upkeep of schools. And if you care about the oceans, your bond portfolio can help finance marine conservation – while still potentially offering you market-rate returns.
In fact, sustainable fixed income tends to have a bottom-line rationale. Bond issuers with environmental, social, and governance ratings are often more competitive, with lower volatility and better returns. The long-term nature of fixed income, many bonds have a timeline of 30 years, can make the asset class a great fit for long-term oriented, sustainable investors.
What are ‘green’ bonds?
If you’re curious about sustainable bonds, one of the easiest places to start is with “green” bonds – bonds that explicitly finance environmentally friendly projects. The first “green” bond was issued in 2007 by the European Investment Bank to fund climate-related projects. More recently, there has been a rise of “blue” bonds that finance water-related projects and “social” bonds financing things such as health care clinics and job training programs. Unless otherwise indicated, these bonds can all possibly offer competitive, market-rate returns.
Stability during volatility
The bond market is attractive because you know your interest rate, even in times of uncertainty. Though prices may go up and down, there’s typically more assurance in the bond market than there is in the stock market. Just like traditional fixed income strategies, sustainable fixed income strategies are typically benchmarked against conventional indices. Sustainable fixed income strategies with better ESG scores have the potential for lowered risk in times of uncertainty while delivering comparable returns to traditional bonds.
Rick Barragan is the Managing Director, Los Angeles Market Manager, for
J.P. Morgan Private Bank. [email protected] | (310) 860-3658
Source: J.P. Morgan Private Bank Insights, August 10, 2023 “Bonds can be a powerful tool to support your portfolio—and your values” by Preeti Bhattacharji, Head of Sustainable Investing, J.P. Morgan Private Bank.