I do not know any pension scheme that only wants to invest in


green bonds. Mark Thompson, a trustee/investment committee member of several pension funds


The idea was to identify two types of issuer. One is having a lack of disclosure about indicators and no ESG score and then another is a bad ESG score. An issuer can have a bad score because of poor transparency. We have started to engage with German companies, for example, to improve the transparency of their reporting. Thanks to that we are more comfortable investing in their bonds. Petheram: I lead a mixed asset team, so equity, fixed income and multi-asset funds. We all come together to plan our engage- ment strategy for the year.


In the UK, it is now part of the Stewardship Code that fixed income investors have to engage. But it is not part of the Cor- porate Governance Code. It is a two-way street, right? Compa- nies need to have to engage with you. So, there are still hurdles and barriers. Thompson: You are talking about codes, but if it just makes sense, you do it. Petheram: You have to be realistic about the efficacy in certain sectors and choose your battles. So, which companies and countries could I effectively engage with?


70% of the investment required to meet our climate goals has to be in emerging markets. It is going to be a big part of our funds, so how do traditionally developed market-focused funds deal with that.


I find it amazing that Egypt’s green bond was hoovered up by sustainability funds despite the human rights violations. That didn’t feel right. We did not have a framework to engage, so we have built one using the UN’s Global Compact initiative and we screen out governments we feel we cannot engage with. Emmons: Engagement is key. A manager will not achieve a high ESG rating if they cannot show evidence of strong engage- ment. Just integrating ESG is not enough.


There has been a step change in the extent to which fixed income investors can engage. It used to be the purview of the equity investor. These days there are many examples of how fixed income investors can engage with an issuer, but it varies between asset classes. In the government bond space, you could argue it is easier in certain emerging markets to have influence, particu- larly if you have size and scale. You can also have influence in some of the more nuanced sectors of the market. You tend to have most influence in credit, and it can differ by sub-asset class. There can be a differential between investment grade and high yield. You might argue that you have more influence in the high-yield market. It is a topical point but cer- tainly engagement is essential. Loughney: On engagement, are active sustainable investors get- ting together as industry groups?


June 2022 portfolio institutional roundtable: Sustainable debt 15


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