At Thornburg, we feel a fully integrated investment approach is the most effective way to incorporate ESG factors into securitized fixed income analysis.
As environmental, social, and governance (ESG) investing continues to evolve in Europe, there are increasing questions among investors about how an ESG framework can be applied to securitised fixed income. The underlying loans backing the bonds in this space are generally U.S. based but have played an increasing role in the alpha and diversification targets of many global fixed-income programs. Historically, the development of ESG analysis has focused on equities and corporate bonds. The Sustainability Accounting Standards Board (SASB) conceptual framework, which identifies material factors for equity and corporate bond investors to consider when incorporating ESG into security research, does not exist for mortgage-backed issuers and most asset-backed issuers. As such, there is no agreed or standard approach to ESG investing in the securitised market. However, investors are coming to understand that ESG factors are material and relevant to security analysis, particularly for a space that is $12 trillion in total size.
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