The idea of socially responsible investments is not relatively new, but the concept is still struggling to break into the mainstream, particularly at time when the markets are at fever pitch and the major indexes like the S&P 500 are hitting record highs. The focus on ESG investing has made headway in the form of equities, but investors are also looking at opportunities within the fixed-income space where funds can make innovations to meet this demand.

ESG Bond Portfolio Ratings

In addition to Deutsche’s foray into ESG selection criteria with DWS, investment firms like Pimco and Fidelity Investments are in the forefront of building their sustainable fixed-income funds through the selection of debt issues of companies with excellent ESG ratings. In addition to selecting fixed income investments based on credit quality, investors can now filter debt issues via their contributions towards social responsibility.

“Environmental, social, and governance (ESG) analysis is becoming increasingly important to fixed income asset managers, catching up to U.S. and global equity research where these factors are more firmly entrenched,” according to asset manager Legg Mason Inc. “Although favorable ESG scores may correlate with attractive investment opportunities, the reason has more to do with improving the ability of fixed income investors to correctly price the risk of bonds over longer time periods.”

The challenge to bring ESG investing into wider investor adoption faces various obstacles, but more education and marketing towards these products, equities or fixed-income, can help increase awareness of these products.

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