ESG IN FIXED INCOME

ESG INVESTING is not limited to equities, although equity investments present clearer choices for Esgconscious investors and enable them to effect change through shareholder activism. Managers of fixed-income investments also need to consider ESG issues, although this asset class, which includes corporate and government bonds, presents different challenges.

In a recent article for its newsletter, Futuregrowth’s manager of sustainable investment practices, Angelique Kalam, says not only are fixed-income managers of pension fund assets required under the Pension Funds Act to consider all issues that could affect long-term performance, including ESG factors, but ESG also offers them “another lens” (in addition to credit and financial analysis) for identifying, managing and pricing risk.

Kalam says that at Futuregrowth (which services institutional investors only), non-financial indicators are assessed, using a variety of tools and inputs, along with financial and credit indicators to produce a “holistic risk profile of any new or existing loan, at a given point in time”.

She says the fixed-income asset class is complex because of the wide variety of issuers, and therefore there is no one-size-fits-all solution to analysing companies on sustainability issues. “Therefore, there will be variances in our approach to, for example, issuers in the listed space versus those in private debt,” she says.