ESG Isn’t Just for Stocks Dividend.comRead More
Impact Investing Forum 2023
London. Dec 05-06, 2023.
Investors can reap the benefits of all this ESG focus on fixed income. Investors can now create an entire portfolio that is ESG-focused, just like stocks. You could have a “dirty bond” side and a green equity side. This was unacceptable for many investors. Investors can now create a portfolio that reflects their values. Evidence suggests that green bonds can outperform ESG equities. Investors can uncover problems that may have been hidden by applying ESG metrics on a firm’s credit rating. How does climate change affect a firm’s future cash flow generation? Although an insurance company may appear strong today, what impact will wildfire activity have on its bottom line in the future? How will doing business with a less-free nation affect a consumer products manufacturer’s production or cash flows? These questions can help investors get better returns and strong fixed income opportunities.
There is evidence to support this conclusion. Barclay’s found that credit ratings for firms with high ESG scores were marginally higher than those with lower ESG scores in the Bloomberg Barclays U.S. Corporate IG Index. Barclay’s also found that high ESG bonds had a cumulative outperformance of around 2.2% over the past seven years. The extra performance is remarkable considering the low interest rates and low returns on fixed income. S&P Global found similar returns when looking at junk bonds with high ESG scores or high yield.