LSEG Invests In Fixed Income ESG Data

Shanny Basar

London Stock Exchange Group has acquired Beyond Ratings, which provides environmental, social and governance data for fixed income, an asset class where investors lag their equity counterparts in integrating ESG data.

Beyond Ratings was founded in 2014 in Paris and delivers standard research, tailored services, advanced quantitative analytics and risk scoring for more than 175 countries and 10,000 companies. LSEG said in a statement that the acquisition offers a significant opportunity for LSEG’s Information Services business to enhance its multi-asset data and analytics capabilities and to further commercialise Beyond Ratings’ existing datasets globally.

Waqas Samad, group director of Information Services, LSEG said in a statement: “The acquisition of Beyond Ratings will accelerate LSEG’s ability to deliver research-driven multi-asset solutions in sustainable finance investing to our global client base.”

Samad told Markets Media in January that there is a wave in interest in ESG from investors, so they require more data.

“In every client interaction the conversation usually turns very quickly to ESG in both equities and fixed income,” he added in January. “We will be coming to the market in foreseeable future with new fixed income data, so watch this space.”

CFA survey

Matt Orsagh, director of capital markets policy at CFA Institute, said in a blog that fixed-income practitioners lag their equity counterparts in integrating ESG data into their investment process.

“ESG integration in equities started gaining momentum at the start of the 21st century, and while ESG integration in fixed income is still in its infancy, it is expanding rapidly,” added Orsagh.

He continued that one reason for the slow uptake of ESG integration in fixed income is the lower level of active ownership as bondholders cannot vote. In addition the survey found that limited understanding of ESG issues/integration was the largest global barrier to ESG integration among fixed-income practitioners.

Other challenges are that bond markets are relatively illiquid compared to equities, so investors are less likely to act on ESG issues and events, and the belief that traditional financial factors, interest rates and inflation, have far more influence on prices.

Matt Orsagh, CFA Institute

“Despite these challenges, a point made repeatedly at several workshops was that fixed-income practitioners tend to be long-term investors, particularly pension funds and insurance companies,” added Orsagh. “Therefore, ESG factors — which are also long-term in nature — are hugely significant to them.”

The study said market participants believe ESG issues affect corporate bond and sovereign debt prices, and this impact will be even more visible by 2022.

Global green research network

Central banks are conscious of the scale of the task required to green the financial system and are seeking help from the research community according to a blog from Nick Robins, professor in practice of sustainable finance at the London School of Economic’s Grantham Research Institute, and Matthias Täger, a PhD candidate in environmental policy and development at LSE’s department of geography and environment.

They said there were three important steps in March this year. First, Mark Carney, Governor of the Bank of England said the UK central bank’s Prudential Regulatory Authority would ask insurers to consider physical and transition risks as part of a mainstream, market-wide stress test.

Mark Carney, Bank of England

Mark Carney, Bank of England

Second, the San Francisco Fed became the first part of the US central bank to recognise that the effects of climate change are “relevant considerations for fulfilling its mandate for macroeconomic and financial stability”.

Finally, the Bank of Canada became the latest institution to join the Network for Greening the Financial System, a voluntary alliance of financial regulators and supervisors which aims to develop necessary tools, methodologies and analytics for making finance more sustainable. NGFS was launched by the Banque de France in 2017 with eight members, and now has 36 central banks and supervisors plus six observers.

“A new research platform has been launched to help fill this gap: the International Network for Sustainable Financial Policy Insights, Research and Exchange (Inspire) is commissioning best-in-class, independent global scholarship and analysis that address seven priority themes that advance the work plan and inspire ambition from the NFGS and its member institutions,” said the blog.

Inspire is also encouraging research on crosscutting themes such as the development of a common language around the environmental properties and factors of financial assets. “This is already happening, for instance, with the development of the EU’s taxonomy on what can be considered an environmentally sustainable economic activity,” the blog added.

Inspire’s first call for research has been completed and a second call will be made in the summer, building on the analytical priorities identified in the first report from the NGFS in April.

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