Creating value and a positive impact for the environment

2024 was the warmest year in a record of global temperature going back to 1850 and the first to exceed 1.5°C above the pre-industrial level, according to a report published on January 10th by the Copernicus observation programme. Clearly, investing in companies committed to fighting climate change has become more necessary than ever.

Launched at the end of November 2023, Sycomore Environmental Euro IG Corporate Bonds invests principally in European Investment Grade bonds and stands out for its alignment with the Paris Agreement. The strategy aims to take part in the efforts deployed to limit global warming to 2°C by 2100.

The current market environment is conducive to the Investment Grade segment which comprises the highest quality corporate bonds. Within this universe, we are convinced that opportunities can be identified among companies that contribute to the energy and green transition.

Though inflation has clearly been ebbing over the past few months, the fight is not over yet, especially in the United States. Donald Trump’s return to power was met with fears that prices may rebound, notably on account of his tariff policy. The rate-cutting cycle could still take several long months.

In addition, spreads have remained rather tight, while corporate credit ratings and fundamentals continued to improve intrinsically. This is evidenced in the many agency upgrades and the declining number of “fallen angels” - bond issuers that have been downgraded to the “High-Yield” category.

Exposure to sustainable growth themes

Within the Investment Grade segment, we see huge opportunities in the energy transition field. We believe that investments may have to be doubled to treble the capacity of renewable energies, and that crucially, spending will have to be trebled to double their efficiency and thereby curb global warming.

Over the past few years, the green bond universe has gained greater depth, boosted by the fast growth of the market with more than half driven by corporate issuers. Europe takes pride of place as the Old Continent accounts for 40% of all green bond issuances throughout the world.

Investing in green companies rather than in green bonds is a play on companies with a pivotal role in the energy and green transition. These companies operate in various industries, including renewable energy, energy efficiency and electrification, green mobility, sustainable construction, the circular economy, the management of natural resources, and eco-services.

A strategy managed with no sector bias

Sycomore Environmental Euro IG Corporate Bonds is one of the most recent additions to Sycomore AM’s fixed income range, which now weighs close to 2 billion euros in assets under management(1). Classified as article 9 under SFDR, the fund invests in bonds issued by a broad universe of companies that contribute to the energy and green transition. These bonds ar principally selected from the European Investment Grade pool, which offers an attractive risk/return combination.

The strategy builds on the team’s 12-year experience investing in credit markets and draws on our extensive expertise in the analysis of environmental impacts, developed since 2015. Stanislas de Bailliencourt, Head of Fixed Income and Asset Allocation, and Emmanuel de Sinety, portfolio manager, co-manage the strategy. Anaïs Cassagnes, SRI Analyst, assists the investment team by conducting specific research on issuer sustainability.

Combining in-depth fundamental analysis and proprietary ESG research, the team selects corporate bonds issued in euros within the Investment Grade universe, principally with BBB ratings(2), and with no sector or market capitalisation constraints. Utilities account for over 55% of the portfolio, which includes 80 positions, a quarter of which are issued by French companies(3).

A holistic approach to environmental issues

In order to assess a company’s overall impact on the environment, its alignment with the green transition is measured using a proven indicator, the NEC, which stands for Net Environmental Contribution. The in-depth analysis of several criteria, based on a three-pronged Climate, Biodiversity and Resources approach, allows the team to evaluate and compare the environmental impact of any product, service or company. The issuer is then assigned a score between -100% and +100%. The NEC of Sycomore Environmental Euro IG Corporate Bonds stands at +47% versus +2% for the fund’s benchmark (Barclays E.C. ex-Fin. TR)(3).

The fund also addresses several of the United Nations’ Sustainable Development Goals including SDG 7 (“clean and affordable energy”), 43% of the impact, notably via Engie and Iberdrola, and SDG 11 (“sustainable cities and communities), 24% of the impact, via Saint-Gobain for instance4. The portfolio is aligned with a 2°C trajectory compliant with the Paris Agreement, versus 2.7°C for its benchmark, the Barclays Capital Euro Corporate ex-Financials TR5.

Sycomore Environmental Euro IG Corporate Bonds steers clear of controversial businesses in accordance with Sycomore AM’s exclusion policy and does not invest in issuers associated with high sustainability risks.

On the performance front, Sycomore Environmental Euro IG Corporate Bonds has returned +7.7% since its inception on November 29th, 2023, versus +6.9% for its benchmark, the Barclays Capital Euro Corporate ex-Financials TR(6). Over 12 months, the fund is up +4.8% versus 4% for the index.

(1) Data as of 31/12/2024.
(2) BBB-rated bonds currently account for almost 80% of the portfolio. This may change at any time. The fund may invest up to 10% of its assets in speculative or non-rated bonds. 
(3) Source: Sycomore Asset Management. Data as of 29/11/2024.
(4) Data from Sycomore AM, Trucost, Bloomberg, Science Based Targets, Vigeo as of 29/11/2024.  
(5) Source: Sycomore Asset Management; Bloomberg. Data as of 31/12/2024. Coverage ratio: 78% (index: 72%* 
(6) Source: Sycomore Asset Management. Data for the IC share class as of 31/12/2024. 

Past performance is no guide to future returns.

The fund comes with no yield or performance guarantees and carries a risk of capital loss. Before investing, please read the fund’s KIID available on our website www.sycomore-am.com . The fund’s objective is based on the realisation of market assumptions developed by Sycomore AM and should not be construed as a performance commitment. These assumptions include the risk that one or more issuers in the portfolio defaults or is downgraded. If these risks materialise more than expected, the fund may not achieve its objective, and investors may suffer capital loss. The opinions, estimates or projections relating to equity market trends or changes to the risk profile of issuers are based upon current market conditions and may evolve without notice. Sycomore AM offers no guarantee whatsoever as to their realisation.