The Case for Integrating ESG into Fixed Income Portfolios

35 Pages Posted: 18 Jul 2022

See all articles by Andrew Clare

Andrew Clare

City, University of London - Bayes Business School

Aneel Keswani

Faculty of Finance, Cass Business School, City University, London

Nick Motson

City University London - Bayes Business School

Date Written: June 30, 2022

Abstract

In this paper we investigate the possible benefits of integrating ESG considerations into fixed income portfolio construction. When we create portfolios ranked by a composite ESG value or by an environmental ranking we find evidence to suggest that higher ESG rankings produce an improvement in risk-adjusted returns. When we use industry-standard tilting methodologies we find that portfolios can be tilted towards a particular ESG characteristic without having a material effect on the risk and return characteristics of the portfolios. Finally, we find some limited evidence to suggest that enhancing the ESG credentials of a portfolio can lead to a reduction in the tail risk of a portfolio, that is, it helps to reduce the frequency of extreme downside outcomes.

Keywords: ESG, fixed income portfolios

JEL Classification: G0

Suggested Citation

Clare, Andrew D. and Keswani, Aneel and Motson, Nicholas E., The Case for Integrating ESG into Fixed Income Portfolios (June 30, 2022). Available at SSRN: https://ssrn.com/abstract=4150263 or http://dx.doi.org/10.2139/ssrn.4150263

Andrew D. Clare (Contact Author)

City, University of London - Bayes Business School ( email )

106, Bunhill Row
London, EC1Y 8TZ
United Kingdom

Aneel Keswani

Faculty of Finance, Cass Business School, City University, London ( email )

106 Bunhill Row
London EC1Y 8TZ
Great Britain
+44 207 040 8763 (Phone)

Nicholas E. Motson

City University London - Bayes Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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