Is ESG compatible with government bond investing?

Fixed income lag

We as fixed income investors have been seen to lag our equity colleagues and counterparts when it comes to integrating environmental, social and governance (ESG) factors into sovereign and government allocations. It is a reasonable assessment, but there are also justifiable reasons for this.

For one thing, it is less straightforward. Take for example engagement, central to ESG when investing in individual companies. Shareholders have voting rights and other means of influencing company management. Bond investors cannot expect to exert the same level of influence over a sovereign government. There are challenges around data and, crucially with country ESG analysis, the advantage enjoyed by higher income countries. Demand for sustainable fixed income is growing and clients want solutions. Bonds are as integral to investor portfolios as ever, currently presenting the most attra...