With bonds now looking more attractive than they have in more than a decade, it’s time that investors looked afresh at the financially material environmental, social and governance (ESG) factors that may impact long-term fixed income valuations.
A particularly effective tool that active managers can use to mitigate material ESG risks in their portfolios is investment stewardship. However, while engaging on ESG factors, alongside other financially material factors, is well understood among equity investors, the relationship between fixed income stewardship and ESG is perhaps less appreciated.
Here, we look at three key reasons why we believe fixed income investors can engage just as effectively on financially material ESG issues as their equity counterparts.
1. Engagement with bond issuers is well established
2. The interests of bond holders and shareholders are aligned
3. Bonds provide the potential for broad engagement
Don’t miss the opportunity for fixed income engagement
As investors return to fixed income, the opportunities for effective and broad engagement on financially material ESG factors cannot be ignored. Not only do fixed income investors have a seat at the table when it comes to engagement with the companies that they are helping to finance in the long-term, but also the global bond markets provide wide ranging possibilities to work alongside equity holders, as well as to engage with private companies and sovereign issuers, in order to help address the material risks and opportunities facing client portfolios.