North America continues to lag the world when it comes to the integration of environmental, social and governance analysis in fixed income portfolios, new figures show.
The second Global Fixed Income Study, by Invesco, included a poll of 102 fixed income specialists around the world, to measure ESG adoption. It found that the majority of investors in North America (56%) had not embraced ESG.
Investors in North America were at odds with the rest of the world, however, with 76% of fixed income respondents in the EMEA region stating they had now adopted an ESG approach, as did 67% of respondents in Asia.
Report author Nick Tolchard, head of EMEA for Invesco Fixed Income (London), said: “ESG integration within fixed income continues to gain traction – and is moving into the mainstream as investors weave ESG factors into policy statements and portfolios.
“The primary driver of ESG within fixed income is a transmission effect from firm-wide adoption which usually commences with equities. Other influences include perceived benefits relating to risk management, enhanced returns, and the views of stakeholders.”
Tolchard added that there remain barriers to adoption, citing a lack of reliable data and “a limited number of quality ESG capabilities and products” considered to be viable by many investors.
The report found that investors in the EMEA region were more willing to sacrifice short-term returns in order to embrace sustainability rules than fixed income investors elsewhere in the world.
Globally, ESG implementation levels have grown since the last Invesco survey in 2018. The latest report shows that nearly two thirds of investors now include ESG considerations across their entire portfolio.
Large investors were the most likely to embrace ESG adoption, with 54% of those stewarding more than $25 billion in assets saying they were committed to building their ESG investment processes.
Medium-sized investors ($5 to $25 billion) were the least likely to state their commitment to sustainability, with only 41% of investors saying they were building an approach.
“Although most investors recognise potential benefits in embracing ESG, the level of commitment to implementation varies widely,” Tolchard explained.
“Larger funds are more likely to have made a firm commitment to ESG, to have built specialist teams, to be engaging directly with companies, and to have taken part in initiatives to further ESG adoption across the industry.”
