Fixed Income: Making ground in ESG

A slow start, but catching up fast

Progress to integrate ESG considerations into bond portfolios has been relatively slow. Consider that the first equity ESG index was launched in 1990, yet the first ESG bond index did not appear until 2013. This comes down in part to engagement factors. Bondholders lack the voting rights of shareholders, encouraging the misconception that they have a limited ability to engage with and exert influence on companies. 

But, over recent years, things have shifted and ESG has gained significant traction in the fixed income markets.  

This comes on the back of a growing body of evidence suggesting that incorporating ESG analysis into fixed income investing can reduce idiosyncratic and portfolio risk and may contribute to more stable returns². 

Hence, asset managers have been working hard to develop solutions that integrate ESG into fixed income. ESG factors are playing a more important role in credit ratings, and bond investors are increasingly engaging directly with companies, holding them to account on ESG issues. Keen to attract ESG investors and gain inclusion to major ESG indices, bond issuers are now much more forthcoming with information. 

Source: Amundi ETF/Bloomberg as of December 2022

1. Source: Amundi ETF / Bloomberg, March 2023
2. For example, ISS ESG in 2020 (https://www.pionline.com/esg/iss-study-links-esg-performance-profitability); McKinsey in 2019 

Knowing your risk
It is important for potential investors to evaluate the risks described below and in the fund’s Key Investor Document (“KID”) and prospectus available on our website www.amundietf.com.
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CONCENTRATION RISK – Thematic ETFs select stocks or bonds for their portfolio from the original benchmark index. Where selection rules are extensive, it can lead to a more concentrated portfolio where risk is spread over fewer stocks than the original benchmark.

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