Why do we believe in the benefits of integrating ESG information into the investment process? To us, it’s clear that environmental, social and governance issues impact share prices, corporate debt yields and spreads, as well as sovereign debt yields. ESG is relevant because it’s about the competitiveness of companies and as such has a long-term impact on the performance of investment portfolios.
Integrating a stronger focus on sustainability is very suitable for fixed income. We prefer inclusion over exclusion and see engagement as an opportunity to initiate change. Sustainability can be incorporated in a bond portfolio without drastically changing characteristics such as duration, credit quality and diversification.
Sanitation is one of the 17 UN Sustainable Development Goals (SDGs). Inadequate sanitation results in serious public health issues and heavy economic losses. Nearly half of global losses were in India, where poor sanitation wiped over 5% off it’s 2015 GDP.
The focus on environmental, social and governance (ESG) aspects of investments by institutional investors has increased significantly in the past decade. Current government and investor agendas tend to be ‘E’ skewed. Infrastructure investments can offer much more than just environmental benefits. Recent rise of UN Sustainable Development Goals (SDGs) have raised greater ‘S’ and ‘G’ awareness.
Investors and asset managers are progressively incorporating the risks of climate change into investment decisions, as it is becoming increasingly clear that those companies that fail to address the issue may be exposed as the world transitions to a low carbon future. As a leading contributor to climate change through its operations, services and use of its products, the oil and gas sector is particularly exposed to the associated risks of climate change. It will require significant changes in the short, medium and long term to mitigate this exposure.
Previously, bond markets in Europe had been divided by international boundaries and the vagaries of national regulations and conventions. But the new market for bonds issued in euros eliminated currency risks and created an integrated market bound by a single set of rules.
With responsible investing and ESG integration now in the mainstream investment arena, the focus is gradually shifting to the actual impact companies are having on society and the environment. A positive impact can lead to more sustainable longer-term business models, supporting valuations and risk–return characteristics of investment portfolios. Measuring this impact remains a challenge for analysts, but improved reporting and transparency, the rise of more data sources and the standardization of measurement methodologies will lead to progress in the next few years. For investors, engagement and execution of our duties as owners of the companies in which we invest can create a win-win for clients’ investment portfolios as well as for broader society.
Alongside a booming green bond market, interest in social and sustainability bonds is growing as investors increasingly commit to social prosperity as well as environmental welfare
It’s proxy season! Throughout Q2, most publicly listed companies and their shareholders meet each other at the annual general meeting (AGM). During this time, shareholders can express their opinion about a company’s performance and strategy, which makes it an important period of the year. It is still the beginning phase of the proxy season, and a good time to reflect on our focus points for this year. So far this proxy season we have voted at over 300 meetings and we have attended a couple AGMs in person. This season, we emphasise three key issues; sustainability, board effectiveness and diversity, and the alignment of executive remuneration with company strategy.
Last year’s positive momentum remains at least partially intact, even as we head into a different part of the cycle. The robust economic environment is a major contributor to credit fundamentals, and while the moving monetary cycle will result in more spread volatility, we will keep riding the positive wave on a selective basis while staying flexible enough to respond to a shift in the balance of risks.