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Assessing the Impact of ESG on Fixed Income

Historical analysis suggests that improving the ESG profile of a fixed-income portfolio would not have undermined performance over the past decade.

By Rob Sawbridge | January 05, 2023 at 02:14 PM
Stock illustration: Data on green energy

Fixed-income assets are the core allocation for many institutional investors. However, much of the academic research into how environmental, social, and corporate governance (ESG) factors influence investment performance has focused on listed equity markets rather than fixed income. There has been little independent research into the effect of applying ESG factors in fixed income.

That is why Insight Investment engaged Bayes Business School—the business school at City, University of London—to independently study the effect of ESG investments on the financial results of a European fixed-income portfolio. Our aim in commissioning this study was to expand the body of work available for reference. While the industry has a feeling for how ESG factors impact performance in fixed income, Insight felt it was important to commission a rigorous, independent academic study on the topic.

The study provides academic support for the practice of considering ESG risks in fixed-income portfolios and gives investors a better understanding of the influences on performance. It also reinforces the importance of understanding the purpose and limitations of using ESG data.

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