Bonds – Feature ESG
sions on equities, so why not use it in other asset classes. “Alongside price, operating risk and financial risk, ESG is part of the core investment process,” says Mitch Reznick, head of sustainable fixed income at Federated Hermes. “There are no longer clients who ask: “Do you do ESG? They are asking specific questions around carbon foot-printing, around sustainable activities and controversies,” he adds. “They are more sophisticated and that is bringing asset manag- ers along with them.”
Other options Yet green bonds are not the only way to make bond portfolios sustainable. Other bonds that seek to fund specific projects have emerged, including sustainability-linked bonds, social bonds, transition bonds and blue bonds, which focus on ocean conservation. ESG in the bond market is stretching beyond labelled bonds with issuers of traditional debt being ques-
tioned by investors on their ESG policy. “It does not have to be labelled for us to like a bond’s ESG cre- dentials,” says Scott Freedman, a fixed income portfolio man- ager and credit analyst at Newton Investment Management. “It is looking at the E, S and G credentials of an issuer, and the extent to which it considers the material risks of its impact on society and the environment. Is the bond achieving good out- comes without having to be labelled?
“There is more breadth in how you build a sustainable-bond portfolio. Not just through labels, but via the credentials of the issuer, too,” Freedman says. So, sustainable debt is not just about green bonds. “There are several paths to building a sustainable bond portfolio,” Reznick says.
Another avenue is that sustainable bond investing is not just for active managers. “Green bonds are a specific option, but it is only part of the environmental approach to ESG,” Guignard
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