Call for more ESG-focused fixed income

The world’s largest pension fund, Japan’s $1.37 trillion Government Pension Investment Fund (GPIF), has collaborated with the World Bank to produce a report calling for more to be done on applying ESG to fixed income investing.

In the report, GPIF and the World Bank say there is no consistent definition of ESG, particularly for the social aspect, and that data is lacking, especially in emerging markets, despite some improvements. They add that there is a lack of ESG-focused products for fixed income investors, and that the demand for green bonds currently far outstrips the supply.

World Bank Group President, Jim Yong Kim, said that meeting the UN’s Sustainable Development Goals will require roughly $4 trillion a year in investment, so institutional investors are needed to bridge a huge gap between that figure and official development spending. “GPIF is helping pave the way with its own strategy to incorporate environmental and social governance into its investment decisions. This sends a strong signal to other investors that this is a smart way to earn a higher return, ensure that developing countries have the sustainable resources they need, and help end poverty all over the world.”

GPIF executive managing director and CIO, Hiro Mizuno, commented: “We especially value the World Bank Group’s unique convening power and expertise to improve breadth and depth of ESG data, especially of social criteria such as human capital and healthcare, and to refine pricing and cost mechanisms for green and other labeled bonds so that such products can become mainstream investment products.”

John Streur, president and CEO at Calvert Research and Management, an ESG-focused fund manager within the Eaton Vance group, said issuance of green bonds, at $200 billion, is insufficient to meet demand. For comparison, he noted Johnson & Johnson has a $300 billion market cap in the USA. He said most ESG research is focused on equities and more needs to be done to provide ESG data on fixed income.