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Fixed-Income Investors Outpace Equity Investors in ESG Adoption

Anna Lyudvig
Feb. 27, 2024, 11:36 a.m.
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Fixed-income investors are more likely than equity investors to view environmental, social and governance (ESG) criteria as an important factor in their investment decisions, according to Coalition Greenwich.

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Fixed-income investors are more likely than equity investors to view environmental, social and governance (ESG) criteria as an important factor in their investment decisions, according to Coalition Greenwich.

According to a new study Why ESG Matters to Fund Managers: Equities vs. Fixed Income, 40% of fixed-income investors said ESG factors are an important or very important part of their investment decision framework, compared to only 29% of equity investors. 

Conversely, half of equity investors felt ESG factors were not important, compared to one-third of fixed-income investors, the report found.

“Fixed-income investors place a higher value on ESG data in large part because they view it as an important consideration in risk management,” said Stephen Bruel, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of the report. 

“In contrast, equity investors see ESG primarily as a means of perpetuating their corporate values and driving impact on sustainability.”

Bruel said that there are many factors that help determine how and to what extent investors employ ESG in investment decision making across individual asset classes. 

“Equity and fixed-income products trade differently, with different levels of electronification, automation and types of execution venues, and the types of fixed-income securities are much greater than in equities,” he said.

In addition, these products are fundamentally different—the former is a debt owed and the latter an ownership stake. These and other related differences must factor into a portfolio manager’s investment—and ESG—decisions.

The diversity of instrument types in fixed income means that generalizations about ESG across this asset class may not always hold, Bruel said. 

For example, while money market funds may care greatly about sustainability issues, holding short-term paper does not necessarily lend itself to making an impact from a sustainability perspective.

“Fixed-income and equity managers agree on one point. They both believe strongly that driving sustainable impact through allocation of capital is a use case for ESG,” Bruel commented.

The report compares the ESG practices, priorities and goals of equity and fixed-income investors.

The report examines whether and how investors incorporate ESG into their investment decisions, investigates the primary reasons investors in both asset classes use ESG, and analyzes current and future demand for ESG data.

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