Insight introduces new ESG rating system for fixed income

Joshua Kendall, Insight Investment

Insight Investment has launched a research rating system to assess issuers against a set of proprietary environmental, social and governance [ESG] risk metrics.

The rating covers over 6,500 issuers covering 850,000 respective subsidiaries.  Breaking it down into sub asset classes, it has been applied to around 99% of companies in euro-denominated investment grade indices, roughly 95% of those in global investment grade indices, and all companies in Insight’s European-focused ESG portfolios.

The rating is a quantitative risk-analysis tool which provides a fresh feed of data into Insight’s credit research hub, alongside non-ESG inputs. It aggregates and assesses external data against a set of 29 ESG risks, which is then employed by Insight’s team of 47 credit analysts to review while forming their qualitative evaluations.

Analysts’ decisions are also based on direct engagement with companies, which the firm sees as a critical part of its approach to ESG risk analysis. Eighty-two percent of Insight’s meetings with sovereign and corporate debt issuers covered ESG topics in 2019, up from 54% the previous year.

Insight has integrated ESG considerations into its investment decision making process for the past decade. The rating system is part of a series of ESG risk analysis tools which the firm has created. It also includes climate and sovereign risk models which have been updated.

Joshua Kendall, Senior ESG analyst at Insight Investment, said: “Our credit analysts find many holes in externally-available information and poor agreement among data providers about what constitutes an ESG risk. Also, for many smaller issuers, particularly emerging market or high-yield companies, the availability of relevant non-financial data lags information from larger issuers.”

He adds, “the rating is also effective in deepening our analysis of the nascent but fast-developing market for impact bonds, where issuance recently passed the $1trn mark.  This market is ripe with opportunities, yet large parts remain obscured by low levels of disclosure, creating challenges around comparability and concerns of ‘impact washing’. Of the 126 new impact bonds analysed in 2019, only 33 satisfied our expectations.”

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