Executive Summary

Investment grade fixed income is an ideal place for institutional investors to begin integrating ESG into their investment portfolios. In fact, high grade bonds and environmental, social and governance (ESG) are such a good match that investors should consider investment grade fixed income as a foundational asset class for the broader integration of ESG into their organizations and investment processes.

Those are some of the key conclusions drawn from the results of our recent study of 80 midsize institutional investors.

The study illustrated that institutions are using ESG in investment grade fixed income more than any other asset class. These investors are starting their ESG journey in investment grade fixed income because the two categories of ESG and high grade bonds play complementary roles in institutional portfolios, and because of the high degree of overlap in objectives and methodologies between investment grade fixed income and ESG. In both, our research suggested institutional investors emphasize risk management as
a means of mitigating downside risks and preserving capital and potentially enhancing long-term risk-adjusted returns.

In this report, we examine how institutional investors view investment grade fixed income and ESG in the context of investment portfolios, which in recent months have endured the market volatility and disruptions caused by the COVID-19 crisis, as well as widespread social and political unrest.

Methodology

During November and December 2020, Breckinridge Capital Advisors commissioned Greenwich Associates to conduct a study designed to gain a better understanding of how midsize institutional investors are using ESG in their fixed income portfolios, and how market volatility and current economic and social conditions are affecting their strategies with regard to both fixed income and ESG investments. We conducted 80 in-depth telephone interviews with decision-makers at U.S. institutions with assets under management (AUM) between $200 million and $1 billion. Corporate and public pension funds made up more than half of the research sample, which also included endowments, foundations and other types of institutional investors. One-third of study participants use ESG in their portfolios. 

DISCLAIMER:
This report is intended to provide general education and insight into ESG analysis and fixed income investing. It contains data and results reported to Greenwich Associates by research participants and the opinions and views of Breckinridge Capital Advisors, Inc. Breckinridge is not affiliated with Greenwich Associates, or any of their affiliates.

Breckinridge commissioned Greenwich Associates to conduct this survey. Greenwich Associates gathered, reviewed and analyzed the data received to produce the final results presented in this report. Breckinridge participated in the design and development of the questionnaire and respondent selection criteria. Information contained in this report is subject to change and may be superseded by subsequent market events or other reasons. Breckinridge does not represent that any of the information is timely or complete, and it should not be relied upon as such.

Nothing contained this report should be considered an offer of any product or strategy, financial advice or a guide to the selection of securities or the construction of a portfolio. There is no guarantee that integrating ESG analysis in fixed income investing will provide improved risk-adjusted returns over any specific time period. All investments involve risk, including the loss of principal.
REV: 247439 FEBRUARY 2021.