Better ESG Integration Bodes Well For Fixed-Income Managers: CRISIL Says

The integration of environmental, social and governance (ESG) factors within the fixed-income space is expected to accelerate in the next three to five years, but asset managers face myriad challenges, according to a newly released report from CRISIL titled, "Breaking out: A toolkit for the next phase of ESG integration in fixed-income investing." Managers can address those obstacles - which include a dearth of fixed-income-focused ESG ratings, obscure methodologies for sustainability reporting, data holes within the high-yield space, and insufficient issuer-level climate and social risk disclosures - by utilizing a bespoke three-step approach outlined in the firm's simple 'toolkit' for practitioners, which comes as annual inflows into ESG fixed-income outpaces those to ESG equity funds.

Says Abhik Pal, Senior Director & Global Practice Head-Fundamental Research, CRISIL, "Our asset management clients are focused on building customized frameworks, which can be used to integrate ESG across public and private credit, but more can be done. They are also realigning product portfolios to be in sync with regulatory requirements, particularly in Europe, and other agendas such the Paris Agreement and Net Zero." He continued, "Given the significant increase in the quantity of sustainable debt, managers can adopt and implement our approach to better analyse the ESG quality of debt issuers, absent a cohesive international ratings and regulatory framework."