Executive Summary

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  • Much has been written about the strategies, theoretical and practical, that can be employed by asset managers to integrate Environmental, Social and Governance (ESG) factors into fixed income portfolios. Less has been written about the challenges facing asset owners—including individuals and families, foundations and endowments—as they try to incorporate an ESG perspective into the fixed income allocation of their portfolios.
  • Cornerstone Capital’s tactical allocation for a typical portfolio includes an allocation to fixed income in the range of 20-40% depending on market conditions. In that context, this report is intended to provide a guide to sustainable fixed income vehicles that are currently available to asset owners.
  • “Fixed income” is a term generally used to refer to debt instruments that provide a return on investment in the form of fixed periodic payments, and the repayment of the original investment at the end of a defined time period. The focus of this report is on fixed income instruments backed both by public (e.g., governments and municipalities, supranational development finance institutions) and private (e.g., corporate, NGOs) issuers that are associated with flows of capital to various sustainable activities.
  • In many respects, integration of ESG into fixed income is less mature than it is in equities. However, given that fixed income investors take the perspective of managing risk more than opportunity—in contrast to equity investors—fixed income ESG analysis likely has a greater role to play in the investment process than is widely perceived. There are a growing number of opportunities for asset owners to invest in fixed income vehicles and securities that provide funding for impactful projects or sustainable companies, and that also offer competitive yields.