Where Is Fixed Income in Its ESG Journey?

Executive summary:

  • Active ownership has emerged as an essential engagement tool, extending beyond equities to encompass fixed income markets.
  • Despite increasing availability, challenges persist in environmental, social and governance (ESG) data coverage across various segments. While corporate credit markets have led to sustainability integration, lower-rated and privately held companies often exhibit limited ESG data coverage.
  • Third-party data providers have continued to expand their reporting capabilities and coverage in measuring greenhouse gas (GHG) emissions.
  • Sustainable outcome-focused strategies have expanded beyond green bonds to encompass various segments, including high yield bonds, emerging market debt, and multi-asset credit strategies.

ESG integration is a trend financial markets are familiar with, but that doesn’t mean all asset classes are at the same levels of progress. ESG means different things to different people, and its integration into equity investment does not represent the same journey experienced in fixed income.

Fixed income markets are witnessing a rapid evolution in ESG integration and product offerings to align with the dynamic sustainability preferences of clients. At Russell Investments, we have monitored practitioners and have identified the pivotal trends shaping ESG integration in the asset class.