Keypoints:
- Since the onset of the pandemic, a range of specific instruments have moved centre stage: green, social, sustainable and sustainability-linked bonds create a rich panoply of tools for investors wishing to give greater prominence to ESG considerations.
- There is also a growing body of evidence that integrating ESG analysis into fixed income can lead to enhanced performance, highlighting the benefits of an active, selective approach.
- A consideration of sovereign debt lends itself to a similar rigour. Governance factors, in particular, have a high correlation with spreads.
The wave behind considering environmental, social and governance (ESG) issues as a key input in capital-allocation decisions is continuing and has gathered pace since the onset of COVID-19. While ESG analysis has traditionally been more closely associated with equity investing, given the ability of shareholders to influence companies directly through the voting mechanism, a sea change has been underway for some time with respect to its relevance in fixed income. Indeed, there are an increasing number of levers that can be pulled, helped by developments in the range of instruments available and an increase in supply, given the evolution of government policy in the wake of the pandemic.
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