Impact Stewardship in Public Debt Markets

Debt Market and ESG

Environmental, social and governance (ESG) expert My-Linh Ngo, Head of ESG Investment, BlueBay Portfolio Manager, discusses the importance of impact stewardship in building a sustainable future through public debt markets.

 

Until recently the limited range of opportunities for impactful investing in public debt markets stood in stark contrast to the scale and urgency of capital needed to fund the sustainability transition to a more sustainable world, as well as the level of investor demand to allocate towards positive environmental and social activities. We genuinely seek to help our investors support the transition to a more sustainable world through investing in public debt markets. We are proactive about contributing towards addressing sustainability challenges aligned with our ESG themes.

The scope of our engagement

An impact strategy in public debt markets predominantly focuses on selecting issuers and bond issuances which support economic activities contributing to real economy positive outcomes and impacts. We recognise however that there is also a role for ensuring responsible stewardship practices. We believe that there is a clear need to facilitate policy frameworks that enable the outcomes and impacts we are seeking to target. This means expanding and complementing the scope of our engagement beyond companies in the private sector to other key stakeholders such as governments, policymakers and regulators. Particularly for a strategy that focuses on enabling a sustainable transition to an environmentally responsible, and socially responsible world. The systemic nature of many of the environmental and social challenges which exist means we recognise the need to collaborate and partner with other stakeholders to increase our influence and reach to deliver on progress.

The importance of fostering new economic activities

We must be pragmatic about the scale and pace of change possible over time, given how multi-dimensional and complex the issues and interactions are. Furthermore, the need to support and foster new types of economic activities which are more sustainable can create reporting difficulties. Investing in smaller companies that are under resourced but offer products and services that contribute positively may have less well established ESG operational practices. This means managing expectations appropriately. Consequently, with impact investing we like to focus on ensuring a minimum level of acceptable ESG practices rather than necessarily requiring advanced ESG practices. Our stewardship efforts also encompass working with other businesses across the investment industry to promote good or best practice on ESG and sustainability matters.

An increased focus on stewardship activities

ESG regulations, as well as wider efforts to address ESG and sustainability impacts, will continue to drive the demand for data and analytics to help stakeholders, including investors, better understand risk exposure as well as performance outcomes. This will drive active stewardship further into the spotlight. We see a growing movement of investors in ESG-linked fixed income products increase their interrogation of issuers on the quality of the issuer’s ESG efforts. We also think that engagement activities may intensify in this sector as opposed to taking an exclusionary or divestment approach to investment as the benefits of engagement to create better outcomes become widely understood. This is a positive step for the ESG and responsible investment industry.

This is part four of a five part series on impact investing in public debt markets.

Learn more about our approach to responsible investing.

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