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An asset owner’s guide to ESG integration for fixed income and credit portfolios

June 21, 2021

How well do asset owners and managers understand the critical linkage between ESG and bond performance?
ESG and Sustainability|Investments
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At Willis Towers Watson, we believe integrating environmental, social and governance (ESG) factors into the investment process will lead to better long-term outcomes, and as such, asset owners need to assess the merits of the managers they invest with. We spend a significant amount of time assessing asset managers’ integration of ESG risks, their engagement with issuers and their stewardship capabilities; however, the ESG integration framework for fixed income has historically been opaque, either overly reliant on an equity model or not specific enough on what ESG metrics are relevant for bonds. This is evolving as more market participants begin to recognise the linkages between ESG and financial outcomes, data have become more prevalent and transparency at the underlying issuer level has improved. Fixed-income asset managers have a huge role to play — whether that be accelerating the understanding and measurement of ESG risks, increasing engagement with bond issuers on stronger terms and ESG disclosures, or finding new sustainable opportunities. The diversity of the asset class — spanning corporate bonds, sovereign bonds, securitise credit and private debt — requires nuances in the approach to ESG. Here, we offer asset owners a deeper dive on ESG integration across each of these areas, best-in-class practices we have observed and a framework to begin to assess the quality of a manager’s ESG integration. We have previously offered insights on fixed-income stewardship and plan to produce a follow-up piece on engagement.

The fixed-income ESG market continues to grow globally, and asset owners are increasing exposure.


Chart depicting allocation of $1Trillion in cumulative green bond insurance as of Q1 2021.

By type: 41% corporate, 28% Government/sponsored entity, 16% development bank and 15% Other

By region: 43% Europe, 28% Asia Pacific, 24% North America and 11% Asia

$1 trillion in cumulative green bond issuance (Q1 2021)
chart depicting percentage of asset owners integrating sustainability in 2017.
In 2017, 70% of asset owners integrated sustainability compared to 80% in 2018
% Asset owners integrating sustainability

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This page contains links to certain historical documents which were issued by Willis Towers Watson (WTW) as at the date specified on each linked document, in relation to the products offered by WTW. WTW believes that it is useful to investors to retain these documents on our website, for your information and reference purposes. Each such document was assessed as being compliant with prevailing regulatory requirements as at its date of issue, including that its contents are fair, clear and not misleading. Given that these documents were issued as at a specific point in time, WTW does not believe it would be appropriate to retrospectively amend those documents. As a result such documents have not been reviewed in light of any subsequent regulatory guidance or market practice including the FCA’s anti-greenwashing guidance (FG24/3). Any persons accessing this page, and the documents made available on this page, should not seek to rely on such documents and should use them only for information or reference purposes. Any investment decision should be based exclusively on the formal offer and subscription documents for the relevant investment product, and not these historical documents.

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Andrew Zurawski
Associate Director, Investments, Asia, WTW

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