To deliver the 530-page compendium and cover every angle of ESG and its impact on the fixed income markets and market participants, the book’s editors - Joshua Kendall, Head of Sustainable Fixed Income at Bloomberg, and Dr Rory Sullivan, CEO of Chronos Sustainability and Visiting Professor in Practice at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics - invited ESG specialists to contribute.

The book also offers detailed case studies from different parts of the fixed income market from a range of organisations with a variety of investment approaches, and it provides in-depth analysis of key issues such as the role and influence of credit rating agencies, green bonds, data and public policy in shaping investment practice.

Joshua Kendall and our two NatWest authors who contributed to the book provide an overview of the chapter across two podcasts. In this first one, the key points that the three of them made during their discussion include:

On the reasons for the book (Joshua Kendall): 

In my previous role as Head of Responsible Investment Research and Stewardship at an investment firm, I had to answer many questions from investment consultants, clients, and regulators about responsible investing. It became clear to me that there were many myths about ESG investing and ESG products and generally a low understanding about the asset class, which in turn made it more difficult for practitioners to make positive inroads towards responsible investments. I realised that we need to educate the wider investment and issuer community about what ESG really means in practice, who the key market participants are and how each of them approaches sustainability issues in the fixed income market – and how this approach differs from the equities market. And aiming to cover each angle resulted in the 20+ chapters – delivered by over 25 specialists – of our book.

On the role of different fixed income market participants in driving ESG practices: 

While fast gaining popularity, responsible investing is still in many ways in its infancy. To achieve maturity, we need to get to a place of greater transparency, clearer benchmarks, better and standardised ESG reporting, and a wider range of ESG products. This requires a concerted effort from all fixed income market participants. This book represents such an effort, with ESG and fixed income specialists coming together to cover every aspect of sustainability and showcase what it means for issuers, treasury teams, investors, data providers, credit agencies, regulators, and other stakeholders. Every single market participant has a critical role to play in driving ESG, and the different chapters in the book provide a detailed account of how every market player can rise to the challenge. 

On the role of labelled ESG debt instruments: 

Labelled ESG debt instruments are a key mechanism to finance the transition to support ESG objectives such as the transition to low carbon or addressing social inequality. ESG debt instruments largely come in two form: (i) ‘Use of Proceeds’ bonds where funds are earmarked for specific environmental or social, or (ii) ‘Sustainability-Linked’ bonds which target company-wide ESG objectives, where failure of meeting these objective may result in higher financing costs.

For investors, ESG debt instruments usually lead to an evaluation not only of the ESG product but also the ESG performance of the entire company behind it, for example, a green or social bond and that opens the way to steer issuer behaviour and challenge companies to adopt stronger ESG philosophies and actions. Finally, labelled ESG debt products also send a clear message to society that the financial community wants to play an active role in the reorientation of our economy towards net-zero.  

On how impact investors can continue to add value in a world where everyone is embedding ESG:

Impact investors provide a competitive edge through specialising in one specific, thematic goal, and this focus allows them to make a measurable impact in the real world. Also, some impact investors focus on getting and then providing higher quality data on their ESG investments which helps driving forward and improving ESG reporting. Finally, ESG investors increasingly move beyond just investing and directly engage with companies to proactively help with the transition to more sustainability – and, in doing so, adding real value.

At the same time, market participants need to understand that we are still far from a scenario where ‘everyone is embedding ESG’, as the issuance of ESG bonds in the last few years shows: only approximately 2,100 companies have issued green, social or sustainability-linked bonds so far, out of 25,000 issuers in the fixed income markets globally. Equally, the number of ESG products, around 47,000, compared to over 13 million fixed income products globally, highlights the fact that the ESG debt market is still in a nascent stage – despite its rising prominence – and hence there’s still a long way to go.  

Want to know more? You can listen to our full podcast here. 

Next week, we’ll be talking to our two authors again to hear the key points they have covered in the book about “The Role of Sustainable Treasury Teams”.