Driving sustainable outcomes through alternative fixed income
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Article Type
Insights
Topics
Responsible Investing, Alternative Fixed Income
Published
September 16, 2025
Read time
5 mins
Authors
Yassine Amri
Frank Meijer
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Alternative fixed income strategies can unlock sustainable investing opportunities with the potential for strong returns and positive impact. While approaches vary across asset classes, the core goal remains: integrating material ESG (Environmental, Social, Governance) factors with traditional financial analysis to holistically assess risks and uncover opportunities.

 
Channeling capital into projects and sectors overlooked by traditional markets, alternative fixed income instruments can deliver critical funding where it’s most needed. Moreover, the structural complexity and bespoke nature of these investments offer a fertile ground for active ESG integration. By embedding ESG considerations into the underwriting and monitoring processes, investors can better manage downside risks, uncover hidden value, and contribute to broader societal and environmental outcomes.

Standardized frameworks for ESG integration often fall short of fully capturing the diverse and complex nature of alternative fixed income instruments. Because of this, ESG integration requires a more hands on approach to strike the right balance between quantitative and qualitative insights, with methodologies varying across strategies.

In this article, we discuss the role alternative fixed income strategies play in shaping a sustainable future, shining a light on Aegon Asset Management’s (Aegon AM) creative approach to ESG integration across key asset classes.


Structured credit

Structured credit offers institutional investors access to diversified, yieldenhancing exposure. Integrating ESG elements into these instruments requires a sophisticated, multi-layered approach, which is why we developed a tailored ESG framework that reflects the complexity of this asset class.

For Asset-Backed Securities (ABS), we evaluate originators, servicers, underlying assets, and jurisdictions. Governance factors are typically most material at the manager and originator levels, while environmental and social risks are more relevant at the collateral level.

For Collateralized Loan Obligations (CLOs), we assess ESG risks at the manager, country, and collateral pool levels.

Additionally, it’s important that our sector-specific analysis ensures relevance. For example, in Auto loan ABS, we assess the share of electric and hybrid vehicles, diesel vehicles, vehicle age, and affordability. In Residential Mortgage-Backed Securities (RMBS), we evaluate the energy efficiency of homes (e.g., EPC ratings), mortgage affordability, and access to government social support. In CLOs, we consider the estimated carbon intensity of the loan pool. Each issue is assigned to one of five ESG risk categories, guiding portfolio construction and risk management. This structured, data-driven approach enables institutional investors to access the benefits of structured credit while aligning with their ESG mandates.


Insured credit

Emerging markets present a unique opportunity for institutional investors seeking both yield and impact. However, these markets often come with a critical challenge: limited availability of reliable ESG data. This data gap can hinder effective risk assessment and obscure the true sustainability potential of investments.

To address this, Aegon AM has developed a differentiated approach through its Insured Credit strategy, a solution with strong social and sustainable characteristics, access to high-barrier markets, all while maintaining high credit quality.


A Unique Structure for ESG-Driven Credit Exposure

The Insured Credit strategy provides access to a private placement portfolio backed by A/AA-rated global insurance companies. These transactions are collateralized by projects across sectors, aiming to improve or maintain infrastructure, healthcare, education, or clean energy, many of which are located in underserved regions. This structure offers institutional investors:

  • Credit enhancement through non-payment insurance
  • Diversification across geographies and sectors
  • Alignment with ESG and SDG objectives through targeted project selection


Integrated ESG and SDG Assessment
Each transaction undergoes a rigorous ESG and sustainability review under Aegon AM’s Responsible Investment (RI) framework. This includes:

  • Evaluating ESG risks associated with key transaction parties
  • Assessing the use of proceeds and their alignment with UN Sustainable Development Goals (SDGs)
  • Collaborating with originators and development banks to improve transparency and reporting standards


A prime example of this strategy in action is the Nyandungu Urban Wetland Eco-tourism Park in Kigali, Rwanda. This 121-hectare project transformed a degraded wetland into a thriving urban ecosystem, supporting multiple SDGs and fostering education, recreation, and local employment, thereby demonstrating how Insured Credit can drive multidimensional impact. Furthermore, our engagement led to improved project-level reporting standards, enhancing transparency and accountability for all stakeholders.

Our success in this space is underpinned by deep relationships with key institutions, including the European Commission, multilateral development banks, and local governments. These partnerships provide early access to high-impact projects, influence over ESG standards and disclosures and on-the-ground insights that enhance due diligence and risk management.


Renewable Infrastructure debt

Our Renewable Infrastructure Debt strategy is designed to finance the transition to a low-carbon economy by investing in loans for renewable energy projects and related businesses. These include wind, solar, and other clean energy infrastructure that directly contribute to climate change mitigation.

We apply a rigorous ESG framework aligned with the EU Taxonomy for Sustainable Activities, ensuring that each investment meets strict environmental standards.

The framework follows a three-step process:

  1. Substantial Contribution – confirming the project supports climate change mitigation.
  2. Do No Significant Harm (DNSH) – ensuring the project avoids adverse environmental or social impacts.
  3. Minimum Safeguards – verifying adherence to social and governance standards.

Only projects that meet all three criteria qualify for investment. This ensures that every loan meaningfully supports the energy transition while maintaining environmental and social integrity. For institutional investors, this strategy offers a way to align fixed income allocations with net-zero goals and regulatory expectations.

 

Private Corporate debt

Our Private Corporate Debt strategy supports the growth of European SMEs and mid-sized companies through tailored lending solutions. These include subordinated loans to Dutch SMEs, often backed by government guarantees, and midcap loans across diverse sectors.

ESG integration is embedded in the due diligence process. Since many SME borrowers lack formal ESG reporting, we engage directly with company management to gather relevant data through sector-specific questionnaires and governance assessments. This dialogue allows us to evaluate ESG risks even in less transparent environments.

Participation in the ESG assessment is encouraged but not mandatory. If needed, we request additional information through bespoke follow-ups. From there, we conduct an in-house sustainability and ESG analysis. Based on this analysis, we assign an internal ESG score to the borrower.

This approach balances flexibility with rigor, enabling us to support businesses that are on a sustainability journey while managing downside risks. For institutional investors, it offers access to private credit with a responsible investment lens, supporting economic resilience and ESG alignment.


Fund Finance

Fund finance is an increasingly attractive segment of alternative fixed income, offering institutional investors short-duration, low-volatility credit exposure with an attractive risk-return profile. Once dominated by banks, this space, encompassing capital call facilities and NAV financing, is now receiving significant institutional investor attention.


To align these investments with responsible investing principles, we’ve developed a robust ESG framework that evaluates both the General Partner (GP) and the borrowing private equity fund. For GPs, we assess ESG policies, governance practices, diversity commitments, and ethical conduct. For the fund itself, we analyze its investment strategy, ESG integration, and transparency in reporting.

 

Conclusion

Alternative fixed income can offer institutional investors a way to align portfolios with long-term sustainability goals while accessing alternative sources of yield. At Aegon AM, we integrate ESG considerations across every strategy from structured credit and insured loans to renewable infrastructure and private corporate debt. Our tailored frameworks ensure that each investment supports long-term value creation and contributes meaningfully to the transition toward a more sustainable, inclusive economy. By combining financial discipline with responsible investing, we help investors meet their return and impact objectives.

Important Information

Authors

Yassine Amri
Responsible Investment Associate

Yassine Amri is a responsible investment associate focusing on sustainability research in alternative fixed income.

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Frank Meijer
Global Head of Alternative Fixed Income & ABS

Frank Meijer, PhD, is global head of alternative fixed income & ABS responsible for Aegon AM’s private debt, direct lending and ABS activities globally.

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