“Report: Fixed Income ESG Can Improve Risk Management, Returns” – Chief Investment Officer – April 25, 2018

On April 25, 2018 Chief Investment Officer covered a new report from the World Bank and Japan’s Government Pension Investment Fund (GPIF) positing that a “growing body of research suggests that incorporating environmental, social, and governance (ESG) factors into fixed income investing can not only strengthen risk management, but should also contribute to more stable financial returns.

‘ESG investing is increasingly becoming part of the mainstream investment process for fixed-income investors,’ said the report. ‘Traditionally, the main focus of ESG investing has been on equity markets. In recent years, however, ESG has spread out increasingly to other asset classes, in particular fixed income, given that bonds constitute a substantial percentage of institutional investors’ assets.’

The report’s findings combine existing research, results of interviews with more than 30 major investors, ESG data providers, and rating agencies, as well as feedback from a workshop convened by World Bank Group and GPIF.  It found that investors are increasingly combining ESG and impact considerations, such as measuring the impact of their fixed income and other portfolios on targeted ESG outcomes.

However, ‘despite this positive trend, significant constraints limit the wider adoption of ESG considerations in fixed-income markets,’ said The World Bank, adding that there are no standard definitions of ESG, and data ‘is still wanting,’ particularly in emerging markets.”

You may read the article on the Chief Investment Officer internet site.