For super funds and their advisers

How to integrate ESG with fixed income strategies

Tina Radovic

For many super funds fixed income portfolios can be their poor cousins in terms of integrating hard-fought ESG principles. A recent study looks at how funds can go about amalgamating ESG and fixed income.

John Streur, the chief executive of US-based ESG specialist Calvert Research & Management, is visiting Australia in March to address this and related topics. Streur will be speaking at the annual Responsible Investment Association Australasia conference in Sydney on March 17-18 and providing his thoughts at a special roundtable that week, plus taking other client meetings.

Calvert, an Eaton Vance affiliated fund manager, has been concentrating on ESG since its inception in 1976. It has about US$21.5 billion (A$32.22 billion) under management as at December last. Eaton Vance is a diversified global manager but has a long pedigree in fixed income and credit management.

Streur said recently, prior to his Australian visit, that the way investors thought about the climate issue, for instance, was “extremely relevant”. It impacted on both companies and governments’ credit worthiness, he said. The costs associated with the recent and, in some cases, current Australian bush fires, represented an immediate problem. But then there was also a longer-term problem, he said.

The fires represented an example of how investors should be looking at the environment and other real risks. He said: “All companies in which we invest are exposed differently to this. It’s a very serious matter and fiduciaries must consider ESG risks, now more than ever. At Calvert we’ve been helping fiduciaries fully integrate ESG risk into decisions for decades, but sometimes members, governments and funds need something distinct, like the fires, to prompt real action.”

The paper published last week on the research website Savvy Investor was written by HSBC Asset Management’s head of credit research in France, Tina Radovic, and senior product specialist for fixed income, Pascale Huard. Xavier Desmadryl, the head of ESG research and PRI at HSBC co-ordinated the project.

The paper says: “Overall, there is growing awareness of the importance of ESG analysis, which allows investors to identify risks and opportunities that cannot be fully detected and measured by traditional financial metrics. Additionally, research suggests that ESG integration increasingly provides downside capital protection rather than being a cost…

“The financial community is thus increasingly integrating ESG in its decision-making processes – when analysing, financing or investing in companies. This trend is likely to continue or even accelerate, meaning that, more and more, market supply and demand dynamics should work in favour of companies with higher ESG standards.”

– G.B.

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