PI Partnership


ers to improve their practices, transparency and reporting for the benefit of all stakeholders. We have noticed ESG-related slides appearing in some issuers’ presentations in some of the most car- bon-intensive sectors, but ESG should be more than just ticking boxes, and fundamental credit analysis remains critical. Environmental factors have often been eclipsed by time spent an- alysing social and governance issues. As the narrative around cli- mate risk becomes ever more urgent, we expect governments to increasingly address it, thus encouraging further green govern- ment bond issuance globally. The US has lagged in the issuance of ‘use of proceeds’ bonds. Fol- lowing the administration change and the country re-joining the Paris Climate Accord, new government policies should ultimately focus on improving environmental and social outcomes domesti- cally. Where governments lead by example, either through poli- cies, support mechanisms or ‘use-of-proceeds’ sovereign issuance, domestic issuers often follow suit. We anticipate that further growth driven by US issuers, for example, can enhance the size, diversification and liquidity of the market. We also expect significant growth in sustainability-linked bonds. The first sustainability-linked bond was issued in September 2019,


and only a handful of issuers have since come to market. This demonstrates that the market is still finding its feet, but we believe this innovative area of financing will ultimately grow. We always prefer to have greater and stronger credit protections; owing to the global chase for yield, much of this has been eroded – both in number and quality. We have always voiced our concerns over the lack of penalties for green bond issuers that do not allo- cate bond proceeds as promised or provide insufficient reporting. For us, having an ESG KPI target that links back to the broader strategy of the issuer can sometimes be more powerful for achiev- ing positive outcomes than a narrow focus on a specific project, but that target needs to be credible. In our view, this is where active management and fundamental analysis can make a material difference. Finally, while data providers are closing the gap on equities, rela- tively poor ESG coverage remains widespread in fixed income, owing to the number of smaller and private issuers. We anticipate further rapid growth in such providers claiming superior insight into material ESG issues, although investors are still learning how to process the expanding data set. Once again, standards and con- sistency will be required to act as investors’ guide rails.


Important information: This is a financial promotion. This article is for professional investors only. These opinions should not be construed as investment or any other ad- vice and are subject to change. This article is for information purposes only. Any reference to a specific security, country or sector should not be construed as a recommen- dation to buy or sell investments in those countries or sectors. Issued in the UK by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973. Newton Investment Management is authorised and regulated by the Financial Conduct Au- thority, 12 Endeavour Square, London, E20 1JN and is a subsidiary of The Bank of New York Mellon Corporation. Newton Investment Management Limited is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. Newton’s investment business is described in Form ADV, Part 1 and 2, which can be obtained from the SEC.gov website or obtained upon request. ‘Newton’ and/or ‘Newton Investment Management’ brand refers to Newton Investment Management Limited.


March 2021 portfolio institutional roundtable: Responsible investing


21


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28