How Mutual Funds is helping change the climate of fixed income - By Madalyn Metzger, Everence Financial and Praxis Mutual Funds
The goal of most investors is to achieve a positive return – with success typically measured in annualized percentages. And while this is an important measure, a growing number of investors are looking for more. Specifically, they’re looking for ways their investments can make a difference, and improve the quality of life in their communities and around the world.
That’s where green bonds come in. First introduced by the World Bank in 2008, green bonds (also known as qualified green building and sustainable design project bonds) are designed to help investors make a positive impact on environmental projects through their investment portfolios.
The market for green bonds has picked up steam over the years. Since their introduction, the World Bank has issued approximately $3.5 billion in green bonds. And while they’re somewhat new to the scene, green bonds make complete sense to Praxis Mutual Funds, a faith- and values-based fund family advised by Everence Capital Management.
Praxis approaches its investment strategy through stewardship investing, a philosophy of financial decision making that balances social and financial considerations and is motivated and informed by the fund family’s faith convictions. This focus is driven by the company’s core values, which include the need to respect the dignity and value of all people, demonstrate a concern for justice in a global society and work toward environmental sustainability.
“At Praxis, we want to do our part to transform our world,” said David C. Gautsche, President of Praxis Mutual Funds. “Our investment philosophy consists of company selection, shareholder advocacy and community development investment. Our core values embrace a wide range of environmental, social and governance concerns, as well as traditional, prudent financial considerations.”
Praxis applies this strategy to all of its five mutual funds – but it is especially notable in the Praxis Intermediate Income portfolio, which includes more than 10 percent of green bonds and other high social impact bonds. In addition, the Praxis Genesis Portfolios (three diversified funds-of-funds celebrating their third anniversary this year) include the Praxis Intermediate Income Fund in their portfolio mix.
Making a High Social Impact Through Bonds
When it comes to stocks, it’s easy for investors to see how they can have a positive social impact by including progressive companies in their portfolios and/or utilizing shareholder advocacy to help goad companies to better social and environmental performance.
Fixed-income investors, on the other hand, can’t make a positive impact in the same way, because they don’t have company ownership. And because many of those same progressive companies are young and small, they likely aren’t borrowing from the public investment grade bond market yet. However, bondholders can help organizations and companies bring down the cost of borrowing at the margin – effectively making an impact in places where a stock portfolio couldn’t. Also, some of these organizations don’t have public stock, and companies borrow for specific energy projects that would not issue equity in the public market.
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