After a brief overview of the rationale for ESG investing, we examine the main investment implications in fixed income, focusing on corporate bond issuers, and investigate the impact of ESG factors on fixed income portfolios.
The paper then aims to establish empirically whether ESG characteristics can be considered an additional, independent risk factor with respect to traditional fixed income factors. To this end, we take ESG scores in combination with traditional investment metrics such as issuer financials, default probability, liquidity measures and spread performance.
Our findings show that integrating ESG characteristics beyond pure financial data in a corporate bond portfolio can add value by both improving performance and reducing returns volatility.
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