Société Générale Positive Impact Structured Note

The Castlefield Real Return fund has invested in structured notes since its inception in 2011. These innovative products have the potential to generate returns uncorrelated with equity markets’ medium-term directional trends. Importantly, they also do this in a way that provides higher potential returns than conventional, defensive asset classes. They do this by using an investment strategy implemented with derivatives which is then delivered to investors within a bond or “note” wrapper. By investing in the Castlefield Real Return Fund, an investor can gain exposure to a diversified portfolio of these structured notes, usually only available to qualified investors.

Whilst equity markets, and to some extent bond markets, have established a framework for sustainable investing, incorporating this into structured products has been slow. Structured notes consist of two separate elements, the strategy itself and the underlying bond-wrapper. Société Générale’s (Soc Gen) Positive Impact Note programme has been launched to provide a means for investors to ensure that the bond-wrapper element of their investment is used to support projects that are deemed to have a positive environmental or social impact. There are two such Soc Gen Positive Impact Structured Notes held within the Castlefield Real Return Fund.

The capital raised from the note programme is ring-fenced and invested exclusively within Soc Gen’s Positive Impact Finance programme. This supports projects which meet one of the three SDG pillars: Environment, Social and Economic. They have committed finance to these projects since 2012 and the amount invested has been growing year on year. It has financed projects promoting education, energy efficiency, and transport communication. One such example is the development and extension of the Milan Metro Line 5, known as the “Purple Line”, connecting San Siro and Bignami and covering 19 stations. The extended metro line now has the ability to carry up to 24,000 passengers per hour, optimising transport and preventing the use of 8,470 tons of oil per year that would otherwise have been required for private transportation. [1]

Where we particularly see the benefits of investing in these notes is their direct funding link to real assets. The financing is ring-fenced and does not form part of the issuing bank’s general Treasury function. Projects are overwhelming invested in infrastructure development, with approximately half of the projects funding energy and waste schemes plus a further 25% in transport and telecoms. Soc Gen use independent assessors for the Positive Impact projects. Vigeo Eiris, a well-respected player in the sustainability industry, evaluates projects and provides end-investors with an annual report on the use of financing from the note-programmes [2]. The additional transparency on the underlying investments is especially welcome when most analysis of structured notes tends to fall on the derivative side of the product rather than the notes themselves.

These kinds of structured notes are in their infancy, however, where possible we will look to invest the Castlefield Real Return fund in assets which can have a positive impact and are invested in developments in a risk-controlled manner focused on the real economy.

Information is accurate as at 06.02.2020. Opinions constitute the investment team’s judgement as of this date and are subject to change without warning. The officers, employees and agents of CIP may have positions in any securities mentioned herein. This material may not be distributed, published or reproduced in whole or in part.

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[1] https://wholesale.banking.societegenerale.com/fileadmin/user_upload/2019_Positive_Impact_Notes_Yearly_Report.PDF

[2] http://vigeo-eiris.com/about-us/

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