Portfolio Institutional: How are pension schemes integrating ESG into their fixed income portfolios? Alan Pickering: As a trustee, I need to tap into all wealth creators, who share their wealth in different ways.


It is timely that we switch the emphasis from reliance on equity to other streams that emerge from the businesses in which we invest. Statistics show that companies are now relying much more heavily on debt, so it seems strange that we are focusing on the equity stream.


ESG is a modern way of ensuring that wealth creators create more long-term wealth than they destroy. As a trustee, I want to tap into those who are creating wealth with an ESG philosophy and I am lucky to work with an increasing number of consultants who are embedding ESG in their work.


There are people around this table who introduced themselves as ESG specialists, but I hope that in the long term there will not be ESG specialists; ESG will just be what we do. Mark Gull: The bond markets, which I have been looking at for more than 30 years, are all about managing risk. As a bond investor, you are professionally miserable because you can only lose money. It’s hard to make much money; it’s about get- ting your money back.


When you tie that to having liabilities going out 50 years-plus, it is crucial to manage risk properly and ESG is a good way of codifying some of the non-financial risks. It is obviously more than that, but good credit investors have always thought about governance and sustainable business models when investing in companies long term. For us it is about understanding the risks of what we invest in and ESG is a great way to help us do that.


PI: When it comes to ESG, what do you look for when assessing a fixed income asset? Gull: We are confident lending to housing associations over the long term because they provide a good social purpose. We talk to them about what they are doing in terms of environmental issues. Are they building on a floodplain? Are they using sustainable materials? We ask how they deal with their tenants as well, but fundamentally we are confident in that sector because there is always going to be a societal need to provide housing. So, it is a long-term social good. Scott Freedman: We manage the downside risk very closely as it takes a bond portfolio a long time to recover from severely nega- tive credit events. It is not just about risk management; it is also about the extent to


8 February 2020 portfolio institutional roundtable: ESG and fixed income


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