Conclusion

Some examples specific to bondholders are showcased in PRI’s ESG Engagement for Fixed Income Investors case study series.

Nevertheless, there are investors who are at the early stages of developing fixed income engagement processes. This is understandable in the context of the unique challenges faced by fixed income investors, such as their different legal standing point compared with equity investors, and the inherent complexity of bond markets given the variety of instrument types, maturities and issuing entities.

This publication has highlighted the influence that fixed income investors have to engage with issuers, based on the increased significance of the bond market and their specific legal and contractual rights and obligations. It has shared practical guidance on how to use this influence to engage strategically across the bond issuance lifecycle. We have concluded with a summary of practical ways to overcome common hurdles to bondholder engagement, and a collection of tips for effective engagement. The appendices include suggestions for further reading, as well as the full version of law firm Reed Smith’s commentary on the scope and limitations of bondholder engagement, both one-to-one and in collaboration with other bondholders. Further, several insights and recommendations outlined in a recent PRI publication – A Practical Guide to Active Ownership in Listed Equity – can equally be applied to other asset classes, including corporate fixed income.

The PRI will continue to support fixed income investors with guidance and support in applying responsible investment practices to their investments. We believe there is considerable untapped potential for them to do so; collaboration between bondholders and/or equity investors offers a means for them to overcome key hurdles and scale corporate engagement efforts. Opportunities exist to better articulate the perspective of fixed income investors in existing and future PRI-led collaborations. Meanwhile, there is also scope to extend engagement to government and government-related issuers, who constitute 40% of the global bond market. Such engagement will present a different set of challenges and opportunities.

Finally, while there has been strong evidence of how active ownership can help to mitigate ESG risks and enhance returns, there is a need for more research and practitioner work to be done to explore the relationship between engagement and positive impacts on society and the environment. This is an area in which the PRI plans to be active going forward, specifically in linking it to our agenda to support investors’ contributions to the SDGs.