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Jennifer O’Neill Senior responsible investment specialist at Aon


HOW CAN INVESTORS UNDER- STAND AND THINK ABOUT ESG WITHIN THEIR BOND PORTFOLIOS?


When developing or implementing a responsible investment policy, equity holdings are usually the main focus of attention.


There is often a perception that integration of ESG factors is less relevant to bonds and fixed income assets, for several reasons: the shorter and predefined investment horizon, and the fact that investors do not have voting rights and the ability to exert influ- ence on issuers in the same way that equity holders do.


In our view, ESG integration in fixed income should be receiving the same amount of attention as equity. It will become ever more relevant as defined benefit pension schemes continue their jour- ney of de-risking away from equities into fixed income. For inves- tors holding fixed income assets to receive contractual income and principal repayment, downside protection is naturally a material consideration: how could ESG factors affect the ability of the issuer to meet its obligations over the duration of the issuance, or nega- tively affect the value of its issued debt in the interim?


Top 10 Risks over the next 10,Years Long-Term Risk Outlook: Impact


Climate action failure


Bloodversity loss Multistakeholders Water crisis Natural disasters


Human-made environ- mental disasters


Weapons of mass destruction Top 10 Risks over the next 10,Years Long-Term Risk Outlook: Likelihood Extreme weather Natural disaster Multistakeholders Human made enviromental disasters Cyberattacks


Global governance failure


Extreme weather


Information infrastructure breakdown


Cyberattacks


Infectious diseases


Climate action failure Economic Environmental Geopolitical Societal Technolocial Source: Global Risk Report 2020


Blodiversity loss


Data fraud or theft


Water crises


Asset bubble


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February 2020 portfolio institutional roundtable: ESG and fixed income


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