Fixed income

ESG analysis provides fixed income investors with additional insight into issuer creditworthiness. To hear more about our fixed income work, contact us.

Bondholder engagement resources

Bondholder1

ESG engagement for fixed income investors: Managing risks, enhancing returns

Principle 2 of the six Principles encourages investors to be active stewards of their investments and incorporate ESG factors into their ownership policies and practices across different asset classes.

Engaging with non-investment grade issuers

Case study by Neuberger Berman

Engaging with a state-owned enterprise issuer

Case study by Hermes Investment Management

Engaging to deepen insight

Case study by Breckinridge Capital Advisors

Engaging with sovereign green bond issuers

Case study by BNP Paribas Asset Management

Engaging with issuers

Case study by KfW

Webinar: ESG engagement for fixed income investors

Integrating ESG factors into issuer analysis

In fixed income, a key application for ESG information is to inform analysis of issuer creditworthiness. ESG issues, such as corruption or climate change, are potential risks to macro factors that may affect an issuer’s ability to repay its debt.

ESG screening in fixed income investing

Fixed income investors apply ESG filters or screens to their investment universe to control which issuers or securities are considered for investment. This is an effective way of ensuring their investments are aligned with their (client’s) ethical motivations and reduces reputational risks.

Proportion of PRI signatories engaging with issuers on ESG management (2014)

Engaging issuers on ESG issues

Debt and equity holders both stand to benefit financially from successful engagements, as ESG-related risks are mitigated and opportunities maximised.

Growth of green bonds issuance 2007–2014

Themed fixed income investing

Investment products such as green bonds are seen by many as a way of addressing ESG risks such as climate change and water scarcity.

Sovereign issuers

Corruption levels of 87 countries (Corruption Perception Index) and sovereign defaults since 1970

Integrating ESG factors into sovereign issuer analysis

Governance factors such as institutional strength and political risks will have an impact on a sovereign’s ability and willingness to repay its debt on time. A country’s exposure and resilience to systemic environmental risks such as water scarcity will affect economic outputs, borrowing and its ability to attract foreign investment ...

Sovereign case studies

European Union 2012 PISA test performances

Education and European government bonds

Case study by BNP Paribas Investment Partners

CORP sub-model combines sector assessment (L1) with best-in-class assessment (L2)

Integrating ESG factors in partnership with an NGO

Case study by Allianz Group in Austria

Corporate issuers

External environmental costs for different sectors

Integrating ESG factors into corporate issuer analysis

Analyses of governance factors such as remuneration and financial auditing are common among bond investors, but few systematically integrate a wide range of ESG factors into credit analysis.

Corporate case studies

Royal London AM steps

Resilience to climate change in the UK water sector

Case study by Royal London Asset Management

CORP sub-model combines sector assessment (L1) with best-in-class assessment (L2)

Integrating ESG factors in partnership with an NGO

Case study by Allianz Group in Austria

Community development programmes in Mexico

Case study by HSBC Asset Managment Mexico

Financial sector issuers and ABS

Integrating ESG factors into financial issuer and ABS analysis

In recent years, investors have become increasingly sensitive to the potential financial impacts of risk management failures, malpractice fines and banks’ ability to meet new regulatory standards.

Financial sector and ABS case studies

ESG in UK social housing investment

Case study by M&G Investments

CORP sub-model combines sector assessment (L1) with best-in-class assessment (L2)

Integrating ESG factors in partnership with an NGO

Case study by Allianz Group in Austria