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Newton: Growing the sustainable pie the right way

Key trends that will help to shape the growth of the sustainable fixed-income market in 2021 and beyond.

  • We anticipate an increased focus on management incentives being tied to ESG-related key performance indicators (KPIs), and not just at senior management level
  • We believe 2021 will see the continued evolution of regulatory plans which will challenge investors, assets owners, companies and governments to improve their sustainable disclosure and reporting
  • We predict the robust growth of corporate and sovereign green, social and sustainable bond issuance, both by region and sector. Credibility is key to its continued growth
  • By asking more of issuers, ranging from the bare minimum of whether they have an ESG plan, to specific topics on how sustainability affects their businesses, fixed-income investors can push issuers to improve their practices, transparency and reporting for the benefit of all stakeholders.
  • In our view, shareholders and bondholders working together will create the maximum opportunity to improve environmental and societal outcomes, as well as share best practices.

With environmental, social and governance (ESG) considerations now high on the agenda for the majority of stakeholders, the integration of ESG factors within the fixed-income investment process is fast catching up with equities.

We believe much can be achieved in fixed income in terms of improving environmental and societal outcomes, through both sovereign and corporate issuers. Policies, regulations and the development of new investing and reporting standards all aim to provide guide rails for bond investors and to improve the consistency and creditability of innovations in the bond market to further enhance sustainability.

In this article, we highlight some themes that we believe will be important for ESG in fixed income in 2021. There is a long way to go, but ultimately, we hope that much of what we discuss here becomes business as usual in the years to come.

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