New research from a top London business school has shown that incorporating ESG factors into corporate bond portfolios has not negatively affected performance – evidence, one expert said, that could comfort bond investors.
The research – carried out by Bayes Business School (formerly known as Cass Business School) and commissioned by asset manager Insight Investment – assessed the implications of applying a range of ESG factors over the 10 years to 31 December 2021.
It found that applying ESG to a European corporate bond reference portfolio was shown not to impair its overall historical risk characteristics or performance over that period.
Another finding was that ESG tilts would have historically improved performance at the margin, and that enhancing the ESG credentials generally led to a reduction in the tail risk of the portfolio, the school and Insight Investment said.
But the researchers said they had observed that the individual ESG factors applied, method of implementation and the time-period observed, could materially influence potential outcomes.
Robert Sawbridge, head of responsible investment at Insight Investment, said: “There has been little independent research into the effect of applying ESG factors in fixed income. In commissioning this study, our aim was to expand the body of work available for reference, in particular to asset owners, who must consider ESG in the context of their fiduciary duty.”
He told a press event yesterday that the findings would give comfort to bond investors by letting them understand that ESG factors had not materially, negatively impacted performance over a 10-year period.
The work was done by three professors at Bayes Business School – Andrew Clare, professor of finance, who is also pension fund trustee, as well as Nick Motson, professor of finance, and Aneel Keswani, professor in investment management.
Clare said the research had implications for investors and fund managers considering incorporating ESG considerations without losing out.
“It suggests that emphasis on ESG would not have impaired investors’ risk-adjusted returns over the last 10 years, which should encourage those wishing to emphasise environmental awareness, a responsibility to employees and a robust governance structure in their investment portfolios,” he said.