How do you engage with bond issuers on ESG factors?


ESG issues can and do impact fixed income investment returns, but they need to be managed and addressed via integrated research and engagement programmes.

At M&G, environmental, social and governance (ESG) risks and opportunities play a vital role in our credit analysis, due diligence and investment processes and engagement with companies is an increasingly important part of this analysis. Our well-resourced credit analyst team benefits from having strong access to executive management and is therefore able to raise ESG concerns with senior decision-makers directly. This can help us better understand both the associated risks with our potential, and ongoing, investments and influence positive change where we believe it would be of benefit.

The number of asset owners that regularly engage with investee companies on ESG issues has grown five-fold over the past ten years. This has been strengthened by support and guidance from policymakers, aimed at encouraging investors to take greater responsibility and to be active agents for change, as well as investor initiatives such as the United Nations-supported Principles for Responsible Investment (PRI).

ESG engagement tends to be less common among fixed income investors relative to equity investors as bondholders are not owners but lenders of capital. As part of the PRI’s commitment to provide further asset class specific guidance on responsible investment practices, it has launched the report, “ESG engagement for fixed income investors: managing risks, enhancing returns”.

The guide explains how we, as fixed income investors, can engage with bond issuers on ESG factors in order to identify and manage ESG-related risks, and increasingly also to maximise positive ESG outcomes. It has concluded with some practical advice for fixed income investors to overcome common hurdles to bondholder engagement, and a collection of tips for effective management.

View the report

As a responsible long-term lender and PRI signatory, M&G has been a key advocate of this initiative from the outset. We are delighted to have been asked to contribute and provide guidance on the content of this publication, as well as being a part of the PRI’s Bondholder Engagement Working Group.

ESG engagement in private infrastructure debt – a practical example

The report is published in conjunction with the “ESG engagement for fixed income investors case study series” (launched in November 2017), which features our case study on “ESG engagement in private infrastructure debt”. An extract of this case study can be found on page 23 of the PRI’s report.

Read the full paper

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