Bonds with Benefits : Impact Investing in Corporate Debt

The growing regulatory focus on quantifiable sustainable investing shifts investors’ demand towards impact products, thus challenging asset managers to align such portfolios with the primary target of outperformance. Using emission intensity, SDG, and green bonds, our study demonstrates the implications of impact investing on an actively managed credit portfolio. We find all measures to be priced, with tighter bond spreads when the impact is positive. Nonetheless, pure impact investors gain slightly lower returns than the market, while active systematic investors can benefit from the low correlation between credit factors and impact measures to achieve their preferred dual target