BNY Mellon IM files to launch a sustainable corporate bond ETF

Svein Floden, BNY Mellon

BNY Mellon Investment Management has filed with the SEC to launch a new active sustainable ETF solution, the BNY Mellon Responsible Horizons Corporate Bond ETF. 

This product will join the firm’s sustainable equity ETFs, launched in March this year and managed by Newton Investment Management, and again draws on the expertise of one of its inhouse firms, Insight Investment, which manages USD970 billion, with specific experience and history of including ESG in fixed income portfolios. 

BNY Mellon Investment Management was relatively late to the ETF party, launching its first ETFs in 2020. Stephanie Pierce, CEO of BNY Mellon Investment Management’s ETF, Index, and Dreyfus Cash Investment Strategies, explains that the range has now crossed the one-year mark and amassed USD800 million in assets. “We are excited about the progress we have made,” she says. “We see the next stage of our future path in the ETF marketplace as being always about meeting our clients’ needs, and making more of our capabilities and our affiliates.” 

Svein Floden (pictured), Insight Head of Intermediary Distribution, explains that Insight is the largest affiliate firm within BNY Mellon’s investment management business. Creating an index for a sustainable bond portfolio has had different challenges, he says. “Being a debt holder rather than an equity holder changes the lens. You tend to hold bonds for longer and as a debt holder, you are senior to an equity holder and have more access and influence into how the companies are managed.” 

Insight has a proprietary ratings approach to evaluating the ESG within companies. “Developing a proprietary approach was necessary as most data providers are focused from an equity holders’ perspective,” he says. “We rate corporations, and also have a sovereign model and provide access across the developed world and the emerging markets. We have also expanded the coverage to more esoteric parts of the markets such as structured credit. We rate this universe and make the metric available to our clients, depending on what they are looking for.” 

That can be any part of the ESG theme. “Our approach allows us to be flexible,” he says. “This ETF is focused on corporate bonds and we are investing in best-in-class ESG names, companies that are highly rated in ESG or on an upward trajectory, which is an important nuance because we also invest in companies that are taking the right steps. 

“We have had ESG ingrained in our investment process for over 15 years and we have USD15 billion in ESG mandates that we manage, which is part of our Northern European heritage.” 

Andy Provencher, Head of BNY Mellon Investment Management North American Distribution, explains that the driver for launching the sustainable bond products comes from the client. “The driver is what it always is for us – client need and client demand,” he says. “This is a space that has been talked about for some time, and in the last couple of years we have seen our largest clients incorporating ESG into client portfolios.” 

ESG has dominated European ETF flows more rapidly than in the US, but this is changing the team says.  

“We are starting to see the flow of money coming into the space at an increased and accelerating pace, as opposed to a couple of years ago,” Provencher says. 

“The biggest challenge has always been the concern that by being more sustainable, you would have to forfeit returns, but over the last couple of years the evidence has been that is not necessarily the case and as we go forward, it becomes a larger priority for firms like Insight, as it relates to where they are making their investments and it becomes much more important for corporations to behave this way.” 

Pierce comments: “In terms of US ETF flows to sustainable ETFs, they nearly tripled in 2020 alone, but most of that is passive. If you look at active, the fastest growing category is actually fixed income and what is interesting here is that what Svein is describing hasn’t been done before, so we are putting those two trends together and we are very excited about bringing those two trends to the market.” 

“Watch this space,” says Pierce. “We are on an ongoing journey about delivering for our clients and leveraging those capabilities that we have.” 

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