Where does fixed income sit in the climate transition investing toolbox? Can sustainability truly be integrated within fixed-income strategies, are the appropriate data sources and reporting frameworks in place to help support impactful investments? Those are some of the questions Danish asset manager selection platform Global Fund Search (GFS) seeks to answer by gathering a round table of experts from both institutional asset owners and managers together as part of the Global Fund Search Investment & Networking Symposium which took place in Copenhagen in September last year.
The discussion was led by Rupert Cadbury, Sustainable Investing Strategist at State Street Global Advisors (SSGA) and Wim Vandenhoeck, Senior Portfolio Manager at Invesco.
The top-down perspective on Fixed Income and Climate Transition Strategies
There is understandable caution on the part of institutional investors when considering climate-related projects in the developing world, especially when pension savings are ultimately at risk. For this reason, Invesco’s fixed income team prefers to focus on the blended finance model, wherein an injection of public capital helps to reduce the overall risk characteristics of the project. This typically involves the participation of national or regional development finance institutions (DFIs), which helps to de-risk private capital investments and thereby create an acceptable risk-return profile for institutional investors. This model is particularly relevant in regions like Africa and Southeast Asia, where climate adaptation projects face higher credit risks.
SSGA’s perspective on this issue is illustrated through the example of US corporate bond portfolios with climate-thematic investment objectives. These portfolios can integrate multiple environmental, social, and governance (sustainability) factors into indexing strategies while remaining benchmarked to a traditional fixed-income index, such as the Bloomberg US Corporate Bond Index. This approach serves as the foundation for the firm’s sustainable investment strategy in the asset class. This involves balancing risk-adjusted returns with measurable sustainability factors and diversification objectives, ensuring that investments align with both institutional mandates and the climate goals of clients who choose to prioritise them.
Better data needed to grease the wheels
Both asset management firms and the wider panel members are unanimous in expressing their frustration at the persistent challenge of obtaining timely, relevant, and accurate ESG data and reporting from the underlying markets, sectors, and portfolio companies. Several panellists highlight the inconsistency, lag, and lack of standardisation in ESG data, particularly in sovereign and parts of the corporate bond markets such a private companies which are not subject to the same disclosure reporting requirements as publicly listed companies. As a result, coverage of private companies, which form a meaningful proportion of the high yield investment universe, tends to be poor in comparison. Sovereign bond investors must contend with significant data gaps and outdated information that complicate the assessment of climate and social risks.
The key to overcoming these data-related challenges lies in complementing many quantitative ESG metrics and scores with a qualitative overlay, which might examine a sovereign or corporate issuer’s recent actions and governance improvement that could signify a growing momentum towards more sustainable behaviour. The experts on the GFS panel agree that forward-looking metrics are crucial in assessing long-term climate risks and pathways. The available tools include positive carbon intensity reduction trajectories and climate scenario-based “value at risk” estimates that have not been picked up in traditional ESG ratings that often rely on static or historical data such as a company’s carbon or greenhouse gas emissions, ownership of or revenue derived from certain fossil-fuel activities. Nevertheless, some panellists note the limited historical data available for back-testing these forward-looking metrics, which makes their adoption challenging for institutions that require robust performance histories.
A call for more pragmatic and adaptable regulation
The discussion turns to the regulatory environment, which has sometime been a hindrance rather than a help, according to some panellists. This is particularly true within the EU, where the Sustainable Finance Disclosure Regulation (SFDR) is identified as a source of confusion, having been adopted as a de facto fund classification system. This has led to the reclassification of funds as the requirements become ever more stringent. The participants express their wish for smarter regulatory frameworks that prioritise intentionality and practical impact rather than exhaustive compliance checks. The fear is that excessively rigid standards may stifle innovation and delay much needed investments in climate adaptation and mitigation projects. The conversation also touches on the growing demand for transparency and reporting on sustainable investments. The underlying investors increasingly expect granular data on the real-world impact of their investments, such as greenhouse gas (GHG) reductions, water conservation, and social benefits. However, achieving consistency and reliability in this reporting remains a challenge.
An appreciation of the Green and SLB markets
A popular solution to some of these problems lies in the Green and Sustainability-linked bond markets, where the round table’s attendees appreciate the possibility of raising capital for specific projects with measurable environmental or social outcomes. However, the participants also note that these bonds often face constraints when included in traditional benchmarks. For instance, certain regulatory frameworks exclude green bonds tied to high-emission sectors, even if the proceeds are earmarked for transitioning to cleaner technologies. Such exclusions create a dilemma for investors looking to support climate transitions in sectors that are critical to achieving global decarbonisation goals. The experts call for more nuanced regulatory oversight that allows for targeted support of positive high-impact projects in hard-to-abate sectors.
The discussion concludes with a consensus on the need for collaboration, innovation, and pragmatism in advancing fixed-income strategies for climate transition. In the participants’ view it is a work-in-progress that will benefit from further dialogue and co-operation between the market and regulators in an effort to improve understanding, remove remaining barriers and encourage the scaling up of fixed income supported climate transition projects.
This article was written by NordSIP in partnership with Global Fund Search (GFS) and is based on a conversation by professional investors for professional investors. The attributions to SSGA and Invesco have been verified by the respective firms. The intellectual property of this content belongs to NordSIP. The following disclaimer only pertains to the attributions to SSGA.
Marketing Communication
For institutional / professional investors use only
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The information provided does not constitute investment advice as such term is defined under the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any investment. It does not take into account any investor’s or potential investor’s particular investment objectives, strategies, tax status, risk appetite or investment horizon. If you require investment advice you should consult your tax and financial or other professional advisor.
The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the applicable regional regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.
This communication is directed at professional clients (this includes eligible counterparties as defined by the by the appropriate EU regulator) who are deemed both knowledgeable and experienced in matters relating to investments. The products and services to which this communication relates are only available to such persons and persons of any other description (including retail clients) should not rely on this communication.
The returns on a portfolio of securities which exclude companies that do not meet the portfolio’s sustainable strategy criteria may trail the returns on a portfolio of securities which include such companies. A portfolio’s sustainable strategy criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.
Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels, Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium is a branch office of State Street Global Advisors Europe Limited, registered in Ireland with company number 49934, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin 2.
© 2025 State Street Corporation – All Rights Reserved.
Tracking code: 7630284.1.1.EMEA.INST
Expiration Date: 28/02/2026
