Investors struggle to incorporate ESG in fixed income

A poll of 290 investors shows limited adoption of ESG in bonds

Just over a quarter (26%) of professional investors have set out a clear responsible investment target for their bond allocations, according to research by NN Investment Partners (NN IP).

This compared to 49% of investors who reported a clearly defined responsible investment policy for equity allocations.

In a poll of 290 investors conducted in May this year, NN IP found that almost half of respondents (49%) were preparing to improve their processes around fixed income in the next three years. For equity investment processes, this figure was 61%.

In addition, roughly 70% of respondents believed equity investors could positively influence companies through engaging and voting shares. However, 65% felt it was harder for bondholders to exert a positive influence.

Edith Siermann, head of fixed income and responsible investing at NN IP, said: “It is striking to see that the number of fixed income investors that currently have an RI strategy in place is still only 26%.

“In my opinion there is no reason why this percentage should be lower than on the equity side. All approaches that are applied to equities can, apart from voting, be applied to fixed income.”

She added that there was more to engagement than voting shares: “The fact that bondholders have no vote is no reason to downplay the value of engagement for fixed income investors. Voting is just one of the ways investors can influence corporate behaviour.

“Irrespective of asset class, engagement is an important tool for driving sustainable change and identifying the most attractive investment opportunities within fixed income.

“I also truly believe that apart from voting, it’s only a matter of time before it is generally accepted that bond and equity holders use similar tools and approaches in their responsible investment strategies.”

NN IP’s research also explored greenwashing, with two thirds of investors (64%) reporting that it was difficult to establish how ‘green’ some products were.

Siermann said it was vital for asset managers to offer transparency on their integration approach to environmental, social and governance issues.