PRI launches fixed income ESG investor guide

LONDON, 18 September 2014

Analysis of Environmental, Social and Governance (ESG) issues such as corruption and climate change should be considered as a natural fit for fixed income investors as it can help to manage risk and identify credit strength, according to a new report released by Principles for Responsible Investment (PRI).

The report - also available in Chinese, Korean and German - is intended as a guide for fixed income investment managers and their clients on how to incorporate ESG into their investment strategies to gain the available information advantage. It was based on interviews with major fixed income investors and support from an investor working group. Participants included two sponsors; KfW Bankengruppe and Union Investment, as well as BlueBay Asset Management, Crédit Agricole CIB, Deutsche Asset & Wealth Management, Zurich Insurance Group and Rathbone Investment Management. The report explores a range of issuer types, such as governments, corporations and financial institutions, and touches on different (listed and private) instruments, including asset-backed securities.

ESG and Fixed Income: Strong interest in enhancing fixed income management

“We have seen considerable interest in incorporating ESG into fixed income investment decision making,” explained Fiona Reynolds, managing director of PRI. “The process has highlighted how ESG factors manifest themselves as material risks. But there remain challenges such as bondholders being relatively unfamiliar with engaging issuers on ESG matters”.

Widespread incorporation of ESG into fixed income hinges on stronger consensus on which available ESG indicators give the most insights; more ESG research coverage for high-yield, emerging market and non-listed issuers; and a better understanding of how bondholders can manage ESG risks by engaging issuers.

“Analysing traditional key performance indicators is no longer enough for determining issuers’ creditworthiness,” said Jens Wilhelm, Member of the Executive Board of Union Investment, who co-sponsored the report. “Considering ESG factors helps us make a more comprehensive assessment of the investment merits of an issuer.”

Dr.Günther Bräunig, Member of the Executive Board of KfW Bankengruppe, the report’s other co-sponsor added:  “As a responsible investor we have already implemented key approaches outlined in this guidance document within our own portfolio. Now, our goal is to foster discussions that will help the PRI establish best practices and set standards for responsible investment across the industry.“

Notes to Editors:

The Fixed Income Investor Guide can be accessed on the PRI website.

The PRI published two reports in 2013 which explore the links between ESG factors and creditworthiness.

  • Corporate Bonds: Spotlight on ESG
  • Risks Sovereign Bonds: Spotlight on ESG Risks

For more information, contact:

Joy Frascinella
Head of PR
Principles for Responsible Investment (PRI)
+44 (0) 20 3714 3143
joy.frascinella@unpri.org