Integrating ESG Factors into Credit Analysis and Bond Portfolios
Let's put aside the debate about whether it is possible to integrate ESG into fixed income and focus instead on how it is possible.
From amending the tenets of credit analysis, to creating custom risk curves, to examining the effects of ESG upon credit returns, the below papers present practical examples and case studies that are directly related to ESG implementation in fixed income processes.
Incorporating ESG Factors into Fixed Income Investment (World Bank, 2018)
The World Bank and the GPIF of Japan jointly suggest that ESG factors amount to a material credit risk for investors in fixed income and that they should therefore be included in any credit risk analysis process.
Sustainability in Credit Under the Spotlight (MFS, Aug 2018)
Lior Jassur discusses environmental, social, and governance investing and ESG integration within fixed income at MFS.
Pricing ESG risk in credit markets: reinforcing our conviction (Hermes IM, Oct 2018)
Hermes has developed a model that examines the ways that ESG factors influence credit spreads; then they mapped this relationship onto their own ESG-risk curve.
Understanding ESG in Credit Portfolios (Macquarie, 2018)
This paper analyses how ESG factors interact with credit quality, how they affect the pricing of credit, and finally how they affect credit returns.
A Look Inside Green Bonds: Sustainable Core Fixed Income (S&P Dow Jones Indices, May 2018)
The S&P Green Bond Index provides a rules-based, transparent benchmark to measure the performance of the global green bond market.
Incorporating ESG Factors into Sovereign Bond Analysis (Franklin Templeton, 2018)
(For compliance purposes, this paper is only accessible in the EMEA region)
John Beck, Franklin Templeton’s Director of Global Fixed Income, describes the importance of ESG factors and the ways his team incorporates them into an analysis of sovereign bonds.
The Performance of Impact Investing Through Private Debt (GIIN, 2018)
In this 40 page report, the authors look at the performance and characteristics of private debt impact funds (PDIFs) operating in a variety of markets.
Green bonds: Awakening the green giant (Fidelity International blog, Sep 2018)
(For compliance purposes, this paper is only accessible in the UK & Europe)
Including carbon reduction bonds in the 'green' bond universe could be a way to energize the green bond market.
Shifting Perceptions: ESG, Credit Risk and Ratings (UN PRI)
Parts 1 and 2 of this report from UN PRI provide insight into ESG factors in credit risk analysis, discussing actions undertaken by ratings agencies, the visibility of ESG risks, ESG time horizons, and other issues.
Responsible investing in EM bonds (Invesco Risk & Reward magazine, 2018)
(For compliance purposes, this paper is only accessible in certain geographies)
Invesco examines whether a fundamental, ESG-focused analysis can improve the assessment of investment risk, the impact of ESG on returns, and other related questions.
Guidance and Case Studies for ESG Integration: Equities and Fixed Income (UN PRI/CFA Institute, 2018)
The CFA Institute and UN PRI provide countless examples of specific methods for ESG integration in portfolio management. Over 60 pages of fixed income ESG case studies are included, starting on page 102.