IA launches fixed income stewardship guide

Industry-wide agreement on approach is a first, says Investment Association

The Investment Association has launched a guide for asset managers undertaking stewardship with fixed income assets.

With 30% of assets under management now placed in bonds, IA said there was a need to encourage better practice with corporate debt stewardship, which is less well-established than it is with equities.

The paper, called Improving Fixed Income Stewardship set out a number of recommendations:

  • IA recommended investors engage for influence and impact, not just information, to ensure engagement contribute to long-term value for clients.
  • Bondholders are also recommended to engage on long-term issues, not just those that impact the issuer during the term of the bond.  
  • Stewardship should be more effectively integrated across debt and equity holdings, looking for opportunities to collaborate.
  • Investors should look for more integration of engagement and ESG research between debt and equity holdings – in particular with respect to collaborative engagements.
  • IA stated managers should have effective governance in place to manage conflicts of interest wit around fixed income stewardship.
  • Finally, bondholders should collaborate more effectively at debt origination, the guide stated.

Investors’ expectations for issuers of corporate debt are also set out in the guide, including:

  • Articulating a debt strategy coherent with the wider capital management strategy of the company
  • Appropriately ring-fencing ESG-labelled debt to its stated sustainability objectives
  • Improving disclosures so bond covenants and documentation reflect ESG metrics and information required for investors to fulfil their stewardship obligations, for example
  • Creating long-term relationships with investors beyond the lifespan of a particular issuance
  • Improving engagement, including by promoting better bond investor access to the board and senior leadership team

The HM Treasury-led Asset Management Taskforce recommended in 2020 the IA produce guidance on how stewardship in fixed income could be improved. The guide, put together with input from the IA’s Fixed Income Stewardship Working Group, has been published in response to this recommendation.

Andrew Ninian, IA director of stewardship and corporate governance said: “Stewardship has a valuable role to play in delivering long-term sustainable value that benefits savers, businesses, and the environment.

“This new guidance builds on the UK’s existing reputation as a leader in stewardship, broadening it from its traditional focus on equities. With 30% of assets under management invested in bonds, this guidance will help improve stewardship by calling on companies to present a coherent debt strategy and better explain how they are managing ESG risks and opportunities, as well as encouraging both companies and investors to build closer long-term relationships.”  

Richard Butters, head of ESG integration, credit, at Aviva Investors, said: “Stewardship is an important part of overall investment analysis that can help identify areas where companies are strong, or where they are failing.

“It can also identify new investment opportunities because issuers that have adopted good ESG practices tend to have robust operating models that are more resilient in difficult conditions.”