Public Fixed Income

Solving for the Climate Transition in High Yield

April 2023 – 8 min read

A holistic approach to climate considerations can offer an opportunity to invest in a diversified portfolio of high yield issuers that are committed to reducing or maintaining a low carbon footprint, while also targeting high current income and capital appreciation.

The climate transition is becoming increasingly urgent. Given the strengthening efforts to achieve net zero, as well as the rise in regulation, climate change mitigation is unquestionably playing a role in investment decisions across the globe.

In recent years, much of the focus around the climate transition has centered on the Paris Agreement, which aims to limit global warming by holding temperature increases to well below 2°C and pursuing efforts to limit increases to 1.5°C. For companies to be Paris-aligned, they must be committed to reducing carbon emissions by around 7% p.a. by 2030 from a 2019 baseline. While there are plenty of companies on track to meet this goal—particularly large, higher-rated companies in asset-light industries—the reality is that for most issuers in the high yield universe, meeting this standard is much more challenging. This is partly due to the nature of the high yield universe, which consists primarily of large and mid-sized companies that typically prioritize capital to deleverage or grow their business. In addition to comprising many asset-heavy companies and industries—energy, metals & mining, for example—these companies can be smaller than their investment grade peers, with less personnel and capital to dedicate to meeting stringent climate targets or other initiatives. As a result, by our estimates, of the roughly 1,600 issuers across emerging and developed market corporate high yield, only about 2.5% are fully Paris-Aligned today.

FIGURE 1: A VERY SMALL PERCENTAGE OF THE HY UNIVERSE IS PARIS-ALIGNED

solving-for-climate-chart1-web.jpgSource: Barings. As of February 28, 2023.

Want to read the full article?

View PDF
Headshot of Adam Schauer smiling at the camera.

Adam Schauer

Portfolio Manager

Forecasts in this document reflect Barings’ market views as of the preparation date and may change without notice. Projections are not guarantees of future performance. Investments involve risk, including potential loss of principal. The value of investments and any income may fluctuate and are not guaranteed by Barings or any other party. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Examples, portfolio compositions, and investment results shown are for illustrative purposes only and do not predict future outcomes. Actual investments may differ significantly in size, composition, and risk. No assurance is given that any investment will be profitable or avoid losses. Currency exchange rate fluctuations may impact investment value. Prospective investors should consult the offering documents for detailed information and specific risk factors related to any Fund/Strategy mentioned.

Barings is the brand name for the worldwide asset management and associated businesses of Barings LLC and its global affiliates. Barings Securities LLC, Barings (U.K.) Limited, Barings Australia Pty Ltd, Barings Japan Limited, Baring Asset Management Limited, Baring International Investment Limited, Baring Fund Managers Limited, Baring International Fund Managers (Ireland) Limited, Baring Asset Management (Asia) Limited, Baring SICE (Taiwan) Limited, Baring Asset Management Switzerland Sarl, Baring Asset Management Korea Limited, and Barings Singapore Pte. Ltd. each are affiliated financial service companies owned by Barings LLC (each, individually, an “Affiliate”). Some Affiliates may act as an introducer or distributor of the products and services of some others and may be paid a fee for doing so.

NO OFFER: The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service in any jurisdiction. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, an investment recommendation, investment research, or a recommendation about the suitability or appropriateness of any security, commodity, investment, or particular investment strategy, and must not be construed as a projection or prediction.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Individual portfolio management teams may hold different views than the views expressed herein and may make different investment decisions for different clients. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any service, security, investment or product outlined in this document may not be suitable for a prospective investor or available in their jurisdiction.

Copyright and Trademark
Copyright © 2025 Barings. Information in this document may be used for your own personal use, but may not be altered, reproduced or distributed without Barings’ consent.

The BARINGS name and logo design are trademarks of Barings and are registered in U.S. Patent and Trademark Office and in other countries around the world. All rights are reserved.