Insight Investment, which is part of BNY Mellon Investment Management, has today released its annual report on responsible investment. It asserts that while the importance of ESG factors for fixed income investments is widely acknowledged, more progress is needed.
Abdallah Nauphal, Chief Executive Officer of Insight, said: “Fixed income has a dominant role in financial markets and investors’ portfolios globally, with annual debt issuance at around 40 times that of equity markets. Responsible investment has traditionally focused on how shareholders influence management decisions. However, the centrality of default risk for debt valuations clearly indicates an urgent need for a much sharper focus on ESG risks as they apply to fixed income – taking into account the opportunities and complexity of the asset class. We believe this is crucial to maximise the certainty of outcome for investors.”
The report details Insight’s efforts to analyse and engage with issuers over ESG risks. This work is underpinned by Insight’s proprietary Prime ESG ratings, which highlight key risks facing thousands of corporate and sovereign entities, including climate change. Insight increased its activity in 2020, with 90% of 1,210 engagements covering ESG issues, up from 82% of 1,151 engagements in 2019.
Insight’s Prime ratings cover corporate and sovereign ESG and climate risks. For 2021, Insight has updated the Prime climate risk ratings, which now cover 1,700 corporate issuers and analyse both physical and transition risks. In addition, Insight introduced sovereign impact ratings, illustrating how 123 countries align with the UN Sustainable Development Goals.
Insight’s engagements with issuers included providing input to the UK Debt Management Office on green government bond issuance. As one of the largest buyers of UK government debt, Insight welcomes the planned green gilt issuance given its potential to enable clients to achieve both environmental and financial targets in their investment solutions.
Progress also requires collective action. Notably, Insight has played a leading role in launching an initiative with the International Capital Markets Association (ICMA), alongside other major asset managers, to improve ESG disclosures in the $12 trillion securitised finance market. Insight believes that embedding ESG analysis across fixed income markets, including more complex asset classes, is vital to maximise investors’ certainty of achieving their goals.