Analysis conducted by Barclays has shown that an optimized intermediate-term fixed-income portfolio using such a screen can provide 40 to 50 basis points of excess annual returns, said Smith.
“That’s a world of difference in terms of outcome. If you’re looking for an asset class where you can demonstrate outperformance with zero additional risk, this is the asset class that can get it done.”
He said that ESG implementation acts as a qualitative screen. Sage uses a four-step process to implement ESG: identify organizations that are consciously and actively building sustainable business models; identify financially relevant ESG factors such as emissions, human capital, safety or supply chain issues; incorporate ESG data to enhance risk analysis and to establish a fundamental measurement of an organization moving forward; and then use ESG to help identify emerging business risks and opportunities for companies and investors over the long term.
“ESG analysis is not a quick fix,” said Smith. “It is a long-term process, and it should be viewed in that light.
“As a credit manager, we’re geared in that direction. You want to bring ESG into risk analysis.”