The investment community — especially fiduciaries — continues to have a flow of more “green” products being made available from a growing number of issuers and their intermediaries; these include “green bonds.” Charting this trend, a team of Barclays managers and researchers issued a report as part of the “Barclays Impact Series.” Their findings: ESG investing can have a positive effect on portfolios for institutional and individual investors. There are small-but-steady performance benefits and no evidence of a negative impact for such investing.
Noted the report authors: “In a world where concerns over climate change, pollution and issues of sustainability are ever more pressing, socially responsible investing has become an important consideration for a growing number of individuals and institutions.”
The researchers concluded that with this growth of “socially responsible” investing the idea that enjoying a financial return on investment while having a positive impact on society is attractive to a growing number of investors. And investment in “green bonds” is one approach to attempt to accomplish that. Different investors, of course, have different appetites for the embrace of ESG factors for their portfolio management.
Introducing ESG factors into the investment process can result in some measure of benefit for portfolios as investors consider the impacts of climate change, limits or constraints on natural resources, shifts in societal norms (such as expecting responsible supply chain management) — and the positive and negative effects on their portfolios.
One of the challenges for investors in assessing ESG investable products is that the typical accounting statements of the issuer (as an example) is not always sufficient for navigating in the new frontier of green bond investing. The bonds being issued (say, for infrastructure) might typically might address E and S issues that are “non-financial” in the traditional management-speak or investor-speak. Think of the impacts of climate change / global warming, pollution, energy conservation (the “E’s”) and numerous workplace issues (the “S”).
The Barclays’ Quantitative Portfolio Strategy team researchers determined that an Issuer’s “G” scoring may be more definable and measurable for potential investment outcomes; corporate governance has been an issue for issuer-investor discussion for decades longer than the typical societal (S) issue of more recent times.
In the study effort, taking the individual elements of ESG, the report authors found that “G” (corporate governance) issues can have the greatest impact on portfolio performance. Green bonds with a higher “G” score apparently have the lowest credit downgrades than those with low G scoring.
The researchers examined bonds in the Bloomberg Barclays US Corporate Investment Grade Index and organized these in Low, Medium and High ESG scoring for their analysis.
The Barclays researchers were Albert Desclee, Lev Dynkin, Jay Hyman, and Simon Polbennikov — they are key players in the firm’s management corps.
There are more details available in the highlights presented in our Top Story. Click here for the presentation of the research results by Barclays.
Sustainable Investing Boosts Bond Portfolio Performance: Barclays Study
(Tuesday – November 29, 2016)
Source: Just Means – The study found that introducing ESG factors into the investment process resulted in a small but steady performance benefit.