ESG was one of the hottest topics in the investment world during 2018. According to this ThinkAdvisor article, nearly 25% of global investable assets are deployed in vehicles with some kind of ESG/SRI tilt.
The piece does a great job pointing out that while there has been tremendous growth, the vast majority of assets moving into the ESG space are equity-focused.
In fact, according to Cornerstone Capital Group, only $385 billion has been allocated to fixed income ESG investing. Further, most “green bond” issuances fall into the $10 million to $100 million bracket. And there’s only a limited number of issuers of sustainable bonds. ESG equity funds, according to an MSCI analysis, outnumber ESG fixed income funds 3 to 1 globally and 4 to 1 in the United States.
Given this large disparity, I thought it would be interesting to begin looking at a Fixed Income portfolio through an ESG lens.
Using FactSet Ownership and Debt Capital Structure data I linked the individual bonds in the Vanguard Intermediate-Term Corporate Bond ETF to their Issuer Entity. From there I was able to link up the Truvalue Labs Pulse score to get an understanding of how the issuers of the bonds in this portfolio look from an ESG perspective.
Now that this data is linked - there’s a whole world of analysis that can be done. For example, issuers can be screened based on positive or negative criteria or the portfolio can be tilted towards instruments with already strong or improving ESG scores.
The chart above shows the weight of each issuer in the portfolio (blue bars) along with a dot showing their end of year Pulse score.
I would love to hear how others are using ESG in the FI space - it definitely seems like one of the next areas ripe for growth in this style of investing.