Transition Pathway Initiative consults on corporate bond analysis plan

The Transition Pathway Initiative (TPI) is proposing to extend to corporate fixed income its analysis of how well companies are positioned for a low-carbon economy.

The asset owner-led initiative is inviting comments on its plans until 14 May.

It is proposing that the methodology for assessing the quality of companies’ management and their performance would be the same as for equity issuers, but has raised the question of whether some indicators might be less relevant to fixed income issuers, or whether additional indicators might be needed.

It explains that as the TPI carbon performance measures are based on carbon intensity per unit of activity or production, rather than financial measures such as turnover, it considers the measures can be directly applied to fixed income issuers. It invites views on this assumption, however.

Other questions identified by the TPI in the consultation document include how it might treat specialist bond issuance, such as green bonds, and assess or treat the use of proceeds, and how it might treat bonds with different timeframes.

Launched in 2017, the TPI was established as a joint initiative between the Church of England national investing bodies and the Environment Agency Pension Fund (EAPF).

The steering committee comprises representatives of asset owners who are significant sponsors of the initiative, including Swedish buffer funds AP1, AP2 and AP3, Westpath in Australia and the Universities Superannuation Scheme in the UK.

TPI focuses on sectors that contribute most significantly to greenhouse gas emissions. To date over 300 publicly-listed companies across more than a dozen of these high carbon sectors have been analysed.

Finance sector inclusion?

The TPI does not currently cover the financial sector, but in its consultation document it asks for views on whether/how it might apply its methodology to that sector.

The TPI’s corporate fixed income project is being funded by Brunel Pension Partnership, one of the UK’s local government pension asset pools, and Faith Ward, its chief responsible investment officer, is chairing the project. Ward worked at the EAPF, which is a member of the pool, before moving to Brunel.

In a recent ‘State of the Transition’ report, TPI indicated that it planned to extend its assessment framework to include sovereign bonds, and to analyse the role investors and finance can play in supporting net-zero pathways for sectors such as aviation, shipping and cement.