Sustainability Dilemmas in Fixed Income

Given the bond market is the largest capital market in the world, the question of how bond managers can invest responsibly, or sustainably, is of crucial importance and an ever-increasing focus for investors.

However, both demand and product offering have until now clustered around the equity space, while the choice available to ESG fixed income investors has been limited.

In addition, a number of stumbling blocks make it harder to implement a ‘true’ style of ESG investing in the fixed income space.

In a webinar co-hosted with TwentyFour Asset Management, a boutique of Vontobel, [i3] addressed some of these challenging issues.

Transcript (with timings)

3:08 – ESG fixed income data completeness is often cited as a problem in the industry

7:35 – Are companies with poor disclosures likely to have poor ESG scores too?

9:50 – Is there a difference in disclosure levels between investment grade and high yield companies?

10:20 –Tesla is a good example of a company you need to look a little deeper at.

12:28 – How do past controversies affect ESG scores?

14:00 – Is there a forward-looking factor that should be considered?

17:07 – ESG ratings agencies can have quite different scores for the same company

21:38 – Bondholders don’t have a seat at the AGM in the same way equity holders do, so how can you engage with, or influence these companies?

25:09 – Is non-engagement subsequently reflected in the cost of capital for future capital raising?

26:00 – ESG integration vs sustainability-linked, SDG and green bonds

30:37 – Philip Morris recently issued sustainability focused bonds with two specific ‘smoke free’ targets. Is this greenwashing?

33:28 – Should energy and utilities companies, ie ‘brown’ companies, be allowed to issue green bonds? Is that considered greenwashing too?

35:25 – Regulatory actions: Alleged greenwashing by fund managers

37:37 – Which of the E, S and G factors are being priced when an event occurs or is there a difference across different maturities?

39:45 – Are government bonds sustainable? G7 bonds vs emerging market debt

42:49 – Is there a sweet spot in portfolio construction? Fund performance, ESG integration and benchmark volatility

 

Presenters

Chris Bowie, Partner, TwentyFour Asset Management

Charlene Malik, Portfolio Management, TwentyFour Asset Management

Host: Teik H. Tan, Executive Director, Investment Innovation Institute [i3]