Sustainability
At TwentyFour, environmental, social and governance (ESG) analysis is integral to our primary goal of delivering capital preservation and performance to our clients.
We believe engagement should be a constructive, active dialogue between investors and companies on all aspects of their ESG performance.
While fixed income investors do not have voting rights in the way shareholders do, larger firms typically issue bonds multiple times a year, which puts bondholders in a strong position to be able to influence corporate policy by engaging with management on an ongoing basis.
At TwentyFour we aim to engage regularly with the management of every issuer whose bonds we hold in our portfolios, to better understand their ESG strengths and weaknesses, monitor their direction of travel, and overall encourage better ESG practices.
As part of our commitment to the UK Stewardship Code we publish a quarterly summary of our engagements with bond issuers, along with details of any resulting investment decisions, at the bottom of this page.
ESG investing is a fast-evolving discipline, and approaches can vary markedly from manager to manager. We therefore believe this makes the quality of the ESG data used in different scoring systems critical to outcomes, and even more so in fixed income, where we think data provision is improving but still well behind the level we see in the public equity markets. Because of this, we regularly engage with our external data providers and push them to extend their output.
We take our stewardship responsibilities seriously and look to always act in the best interests of our clients. We conduct a significant amount of due diligence on issuers with whom we invest, which enables us to avoid companies we believe do not meet our high standards in strategy, performance and/or ESG factors.
The general principals of our engagements are not fund or geography specific. Global fixed income markets are large, diverse, and complex. As such our approach is designed to retain a dynamic approach to serving our clients’ needs. In general we will engage on any topic as and when we feel it is in our clients’ interests to do so.
Investment or ESG issues can arise post-investment, and where we are concerned about specific ESG matters, management behaviour or treatment of bondholders, the portfolio managers will engage with the appropriate senior management or board member of the company involved. Within our proprietary ESG model, housed in our Observatory portfolio management system, we have a template which enables portfolio managers to log any company engagement by the following steps:
Our system is also able to capture and log any associated email correspondence, write-up, blog or any other related documents to build a detailed history of our engagement with every bond issuer.
We generally keep such discussions private as we believe better outcomes can occur this way, but we have on occasion published blogs discussing issues that we have found difficult to resolve and we felt deserved to be brought to our clients’ or the broader market’s attention.
For example:
Generally, if we have not been able to resolve an issue satisfactorily, we would not invest in bonds issued by those companies, however we would continue dialogue to ensure, as far as possible, the company in question understands why we are not investing in its bonds and that we are kept up to date with any developments including changes in management behaviours. If we are already invested in the bonds, it is possible the matter will result in us exiting the investment, at which point transparency may be delayed to avoid compromising the interests of our clients.
As a signatory to the existing FRC UK Stewardship Code we publish quarterly on our website the following engagement information:
Number of Borrower meetings / updates
Number of corporate actions
Summary of Corporate engagements
Following JP Morgan’s departure from the Net Zero Banking Alliance (NZBA), we engaged with the bank (and other US banks) to determine whether this marks any change to its net-zero targets and fossil fuel policies set under its membership. The engagement began via email and was followed by a call for further clarification.
JP Morgan confirmed that its net-zero targets and broader climate strategy remain unchanged following its departure from the NZBA. The bank emphasised that its decision to exit was unrelated to the current US administration, noting that internal discussions were already underway. Management stated that long-term strategic decisions are not influenced by a four-year presidential term. While the NZBA initially played a valuable role in developing sectoral guidance in collaboration with other global banks at a time (back in 2021) when decarbonisation strategies across the sector were still unclear, JP Morgan has since built its own dedicated climate team and now believes it has the internal expertise to independently drive its transition strategy. The bank therefore no longer sees the benefits of the alliance’s partnership and guidance.
On fossil fuels, JP Morgan clarified that they will not finance any new coal-fired power plants, oil & gas clients must meet internal thresholds and demonstrate progress over time (though there is no formal phase-out plan), and future financing decisions will be shaped by market demand and government policy. It reiterated the importance of energy security and the ongoing role of fossil fuels in the overall energy mix. However, we think the absence of a phase-out plan raises questions about the credibility of the bank’s net-zero targets.
We do not believe management’s explanation that the NZBA exit was not influenced by the new administration, however we understand this has to be a message from a marketing perspective. Fossil fuel phase-out plans remain weak, but this is reflected across much of the US banking sector. We were encouraged that targets set under the alliance remain in place, however we acknowledge that it is early days, therefore we must monitor published lending data to observe any change in lending patterns to fossil fuel companies, and also any changes to net-zero targets or fossil fuel lending policies.
We had a meeting with NextEra’s CFO for a general investor update and a deep dive into its approach to net-zero and renewables.
NextEra reaffirmed its commitment to reaching net-zero carbon emissions across its operations by 2045, despite the policy shift under the new US administration. The company outlined interim targets to reduce emissions by 70% by 2025, 82% by 2030, 87% by 2035, and 94% by 2040, relative to a 2005 baseline. These reductions are to be achieved without the use of carbon offsets, relying instead on expanding solar and wind capacity, increasing battery storage, and deploying green hydrogen.
We asked whether the new administration’s more supportive stance on fossil fuels and scepticism towards renewables had altered the company’s approach. Management confirmed there has been no change in strategy, stating renewables remain the most economically attractive option. However, they noted that they are no longer pursuing offshore wind projects, as the administration has halted new federal permitting.
In terms of fossil fuel investment, the company emphasised that it makes long-term business decisions that are not driven by a four-year political cycle. Management stated that the economics of new fossil fuel projects remain unattractive compared to renewables. Even if they were to consider new gas generation, supply chain constraints such as a four-year wait for gas turbines would pose a barrier. On coal, they reiterated that new investment is off the table, citing high costs and lack of commercial viability. They remain on track with the planned decommissioning of their small remaining coal portfolio.
This was considered a strong engagement. We were encouraged by the company's continued commitment to renewables, its decision to avoid coal and new fossil fuel investments, and its transparency around the impact of federal policy, particularly regarding offshore wind. We will continue to monitor progress toward its net-zero targets.
In light of the recent increase to the UK national living wage, we asked management how they intend to pass this on to employees and whether this would be done in a timely manner.
Management confirmed the increase and noted that Sainsbury’s has already announced a 4.5% phased hourly wage rise for colleagues in full-year 2025. We view this as a proactive and responsible approach amid ongoing cost of living pressures. Management also indicated that the associated cost pressures will likely be passed on to consumers, in line with broader sector trends. However, they acknowledged that some job losses are expected as part of wider cost-cutting efforts, driven by higher wage bills and rising National Insurance contributions. While this is a difficult outcome, we found it to be understandable in the context of the current economic environment.
Continue to hold. We are encouraged by management’s proactive stance on wage increases, which supports employees during a difficult period. While job losses are regrettable, they appear necessary given the financial headwinds facing the business.
We had a meeting with the ASR team ahead of their RMBS transaction, to discuss the disclosure of carbon emissions in the transactions.
ASR confirmed that the carbon emissions for the portfolio are not reported, which falls below the standard of peers in the Dutch RMBS market. ASR emphasised that the group have always focused on improving the existing stock of homes in the Netherlands, rather than lending at a preferential rate to an existing stock of higher EPC properties, an approach they believe holds a higher impact to the wider emissions of the Dutch property market.
Outside of EPC related lending, ASR have continued to develop products to support sustainable lending, which includes increasing the sustainability grant to €65k this year, which has been recognised on a national level as innovative in the market.
We are disappointed with the lack of disclosure in this transaction, particularly against peers, and we vocalised this with the team. We do understand the internal motivation to focus on developing the older housing stock in the Netherlands, however, do not see that this justifies the lack of disclosure of carbon emissions. We gathered an updated timeline, that we are satisfied with, for company emissions to be reported for the full-year 2024, and securitisations from 2026. We will continue to engage to monitor this.
We had a meeting with the Bank11 team for a general investor update and a deep dive into their tightening of credit quality in response to a deterioration in collateral performance.
Bank11 acknowledged the increase in delinquencies against previous cohorts, which they said have been driven predominantly by weaker macroeconomic conditions in Germany. The head of risk, who was on the call, reaffirmed that the company continue to review credit risk on a basis of probability of default, emphasising the risk of the borrower over the collateral recovery of the car. To that extent, they have continued to review lending criteria at least annually.
Bank11 have most recently reviewed their criteria in mid-2024, where they took actions to significant tighten budget calculations for applicants, a prudent approach in our view given the underperformance of German households. Bank11 will continue to look to support customers who fall into delinquencies and have intensified outbound contact in the past months to further support borrowers.
They reiterated the flexible approach to lending, pointing to an abundance in data points in which they can adjust risk appetite. There is also an extent of performance normalisation in arrears, against artificially low levels post COVID-19, so management are not overall concerned on absolute levels reverting to those levels.
We thought this was a strong engagement. We were encouraged by the company's continued commitment to a flexible credit policy, and willingness to increase staffing efforts in the collections team, assisting borrowers. We will continue to monitor performance of the cohort of borrowers to evidence criteria tightening from Bank11.
