ESG & Credit
For some, incorporating environmental, social and governance (ESG) factors into fixed income investing may be limited to having a small allocation to green bonds, or not investing in the debt issued by tobacco companies. These efforts are worthy, but only scrape the surface.
Our main objective for integrating ESG analysis into our investment process is to ‘enhance return potential’ and seek to protect value for our clients, across the full spectrum of financial instruments.
Our credit (bond) portfolios offer investors a platform to invest in idiosyncratic opportunities. To deliver that promise, we employ a holistic approach to credit combining fundamental analysis with ESG insights. For a company to be a long-term holding in our portfolios, we require cashflows that are sustainable in every sense of the word and ESG analysis is central to this work. Some may argue that it is sufficient to rely on the rating agencies’ assessments of these factors. Our experience is that rating agencies largely deal with explicit ESG risks in their most formal manifestations on an ex-post-facto basis, e.g. mandatory regulation, product recalls and consumer boycotts. This often is too late to have a positive impact on our portfolio performance.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.