Forest: When we want to engage with a government issuer, yes. Petheram: There are legal constraints, which have been a mas- sive barrier for a long time. There are a few, but it is early days. Forest: Engagement has become the focus and this is only the beginning. Petheram: Where the market could do better is in improving the frameworks. The Green Bond Principles, for example, is a group of investors, issuers and non-government organisations. Investors have not formed a good enough group themselves to improve the rigour of those frameworks. Yu: An engagement can take three years minimum to make an impactful change. It is a long and heavily-resourced activity. A way that small asset managers can take advantage is to not just rely on the asset managers, but also leverage on the ESG data providers. ISS [Institutional Shareholder Services], for
16 June 2022 portfolio institutional roundtable: Sustainable debt
example, has a collective engagement programme. When they engage with companies about the ESG perspective, it will include questions from asset owners in the engagement pro- cess. Investors can then track what improvements the company has made. Thompson: Engagement has certainly grown on the bond side, but to the fund managers among us: are you getting pressure from the institutional investors to engage more or is it some- thing you believe is the right thing to do? Forest: There is pressure, especially when you invest in emerg- ing markets or high yield. We know that ESG scores are not great, so we need to engage with these issuers. Petheram: There is a double lens to this. It is not just about com- panies producing responsible outcomes, it is also about max- imising your risk-adjusted returns.
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