30 Years of Impact Bonds: Q&A with Benjamin Bailey of Praxis and Cliff Feigenbaum

An Interview with Benjamin Bailey of Praxis and Cliff Feigenbaum, GreenMoney 

This year marks the 30^th anniversary of the Praxis Impact Bond Fund, which gives faith-based and other investors access to a broadly diversified core bond portfolio with a focus on green, social and other types of impact bonds.   

Over the years, the fund’s appeal has broadened from faith-based investors to include sustainability and social-impact focused investors. Its assets have grown from $11 million in 1994 at the fund’s inception to nearly $1 billion today. 

Over time, as more impact-oriented bonds have come to market, Praxis has increased their allocation to 36% in the Praxis Impact Bond Fund.

GreenMoney Journal founder Cliff Feigenbaum recently spoke with Benjamin Bailey, CFA, Vice President of Investments and Senior Fixed Income Investment Manager for Praxis Mutual Funds, on a variety of topics. Here’s the interview –

Cliff: What’s the History of the Fund? 

Benjamin: Originally called the Praxis Intermediate Income Fund, the Praxis Impact Bond Fund launched in 1994 to give Mennonite and Anabaptist investors a way to invest in bonds consistent with their values. Praxis brought retail investors an approach to fixed income investing that religious institutions in these faith traditions had utilized for decades.

I joined the fund’s portfolio management team in the early 2000s at the start of my investing career. In those years, we screened out issuers that didn’t meet our specific values criteria—so we were avoiding “the bad”—but we hadn’t yet envisioned a way in which we could really make a deep, positive impact in the world.

A watershed moment came in 2006 when we invested in the International Finance Facility for Immunization (IFFIm). Learning about this opportunity in vaccine bonds opened my eyes to the specific impact that investing in positive impact bonds can have in a fixed income portfolio.

The introduction of green bonds in the U.S. in 2009 and subsequent growth of the impact bond market have allowed Praxis to ramp up the percentage of the portfolio that is dedicated to positive impact bonds. By 2016, that percentage had grown to nearly a quarter. That’s when we changed the name to the Praxis Impact Bond Fund, wanting to make clear that our focus was on making a positive impact through this fund, to the degree the market made it possible. Today, the percentage of impact bonds is even higher – about 36%. And we look forward to growing this percentage even further.

Cliff: How Does Praxis Define “Positive Impact Bonds”?

Benjamin: Positive impact bonds are bonds that make a specific positive impact to the climate and/or communities. A specific part of this market is in bonds called green bonds, social bonds and sustainability bonds. These have generally accepted guidelines from the International Capital Market Association on what projects are acceptable in each of these categories and establish general expectations for future reporting and signoffs from management and auditors.

As investors, we want the bonds to have a level of rigor and depth to them in terms of impact, but we also don’t want to discourage potential issuers with too many firm regulations and rules.

As committed impact bond investors, we often engage the issuers, encouraging them to take this opportunity seriously and pursue the highest standards that are feasible.

Cliff: How Has the Positive Impact Bond Market Changed Over the Past Few Years?  

Benjamin: The market went through a large period of growth, with consistent issuance increases year after year for over a decade. According to Bloomberg, the broader impact bond market went from an issuance of about $600 billion in 2020 to nearly $1.2 trillion in 2021, with 2022 and 2023 remaining at similar levels. There is still strong growth this year. According to Bloomberg, there has been $700 billion of green, social, sustainability, and sustainability-linked corporate and government bond issuance this year as of Aug. 23, 2024, up 9.5% from the same period last year. But the vast majority of that growth is in international markets. There hasn’t been strong growth in the U.S. dollar domestic market. Specifically in 2023, U.S. dollar-denominated ESG bonds issuance was down 49% from 2022, and the 2024 issuance of these bonds has continued to be slow.

Cliff: How Do You Go About Ensuring Diversification and How Important Is It in a Fund Like Yours?

Benjamin: We want investors to be able to utilize this fund as part of their core fixed income allocation and not view this investment as a niche part of their portfolio or as a form of charity.

To achieve that, we aim to generate performance similar to the Bloomberg Aggregate Bond Index – a common benchmark for core bond funds – over market cycles, while maximizing our ability to have a positive impact in the world we share.

While it might be great to say in the short term that a fund has “100% positive impact bonds,” in the long term, I don’t feel that fund would be appropriately benchmarked to a broad fixed income index. This would fail our understanding of our fiduciary duty to our shareholders.

Most people don’t want to sacrifice returns that could impact their retirement in a large portion of their fixed income allocation. We believe people shouldn’t have to make that choice. Most faith-based and sustainable investors are looking for a mix of solid, long-term performance, proper diversification and an ability to make a real impact through their investments.

Cliff: How Has Investor Interest/Investor Makeup Changed Over the Years?

Benjamin: Over the years, we’ve increasingly attracted faith-based, SRI and sustainable investors, especially as the green, social and sustainability bond space has grown in visibility. In addition, the fund is included in many sustainable and values-based models for advisors, across different platforms, which has been important to asset growth. Just over a decade ago the fund had $350 million in assets under management and now we hold just under $1 billion.

In a social climate fraught with division, Praxis is grateful to attract investors with a wide range of convictions. Some of our investors may be motivated by traditional values that emphasize personal morality while others prefer more progressive engagement of systemic social and environmental challenges. However, all these investors want to be productive stewards of the resources entrusted to their care.

Cliff: How Can Investors Know That Their Investments Are Making a Difference? 

Benjamin: There are many ways to make a difference with your financial resources – through charity or purposeful purchasing, for instance – but investing with your values in mind allows you to use the power of your investment portfolio to promote a better world. It is important to consider the full range of impact opportunities available, including positive impact bonds. Our annual Praxis Real Impact Report and Real Impact Quarterlies document seven different impact strategies, available across a range of fund types, that can help investors understand the impact of their investment dollars.

 

About Praxis

Praxis Mutual Funds is a leading faith-based, socially responsible family of mutual funds designed to help investors integrate their finances with their values. Praxis is the mutual fund family of Everence Financial^®, a comprehensive faith-based financial services organization helping individuals, organizations and congregations. To learn more, visit praxismutualfunds.com and https://everence.com .

More about Benjamin Bailey: 

Benjamin Bailey, CFA^®, Vice President of Investments. Benjamin joined Everence in 2000 and was named Co-Portfolio Manager of the Praxis Impact Bond Fund in March 2005, and Co-Manager of the Praxis Genesis Portfolios in June 2013. In 2015, he was named Senior Fixed Income Investment Manager, providing leadership to the fixed income team and oversight to external sub-advisory relationships. Benjamin is a 2000 graduate of Huntington College in business-economics. Connect with Benjamin on LinkedIn.

Consider the fund’s investment objectives, risks, charges and expenses carefully before you invest. The fund’s prospectus and summary prospectus contain this and other information. Call 800-977-2947 or visit praxismutualfunds.com for a prospectus, which you should read carefully before you invest.

Praxis Mutual Funds are advised by Everence Capital Management and distributed through Foreside Financial Services, LLC, member FINRA. Investment products offered are not FDIC insured, may lose value, and have no bank guarantee. Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially for longer-term issues and in environments of rising interest rates. The Fund’s investment strategy could cause the fund to sell or avoid securities that may subsequently perform well.

The Bloomberg U.S. Aggregate Index is an index of widely held fixed-income securities often used as a proxy for the bond market. It is comprised of the U.S. Treasury and U.S. agency bonds, mortgage-backed bonds, and higher-grade corporate bonds. Indexes are unmanaged, do not incur fees, and it is not possible to invest directly in an index.

Bloomberg Aggregate Bond Index: A broad-based benchmark that measure the investment grade, US dollar-denominated, fixed-rate taxable bond market. You cannot invest directly into an index.

Diversification neither assures a profit nor guarantees against loss in a declining market.

ESG: environmental, social, governance. The Fund’s investment strategy could cause the fund to sell or avoid securities that may subsequently perform well, and the application of ESG and/or faith-based screens may cause the fund to lag the performance of its index.

Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially for longer-term issues and in environments of rising interest rates. The Fund’s investment strategy could cause the fund to sell or avoid securities that may subsequently perform well.

Praxis Mutual Funds, 1110 N. Main St., P.O. Box 483, Goshen, IN 46527