Fixed income investors seeking to better understand the environmental, social and governance standards around their decisions could benefit from a new partnership between the World Bank and Japan’s Government Pension Investment Fund.
The bank and the fund announced their partnership at the World Bank annual meetings in Washington DC on 12 October. The aim is to direct more capital towards sustainable investments by promoting strategies that integrate impact criteria across a range of asset classes. This is expected to bring standards for fixed income instruments up to par with private equity investments.
Jim Yong Kim, president of the World Bank Group, said the initiative aims to “transform the way asset owners and managers see investment opportunities”.
Green bonds are a prominent example of fixed income debt instruments that investors frequently struggle to define. Some debate remains over what qualifies as a green bond, though efforts have been made by the Climate Bond Initiative and the International Capital Market Association to develop comprehensive guidelines. The Impact Reporting and Investment Standards (IRIS), managed by the Global Impact Investment Network (GIIN), also provides a way for investors to apply specific metrics to their own portfolio’s impact over time.
Addressing the standard gaps for fixed income investments will however require an initial joint research programme to establish ways to thread sustainability criteria throughout fixed income portfolios. According to the World Bank, these criteria include benchmarks and guidelines for impact as well as rating methodologies, disclosure frameworks, reporting templates and risk correlation for sovereigns and sustainable bond markets.
Speaking on the need for more fixed income investors to acknowledge the benefits of sustainable investment, Kim added: “We can’t achieve the Sustainable Development Goals and meet the world’s rising aspirations without a much bigger contribution from the private sector. There’s more than US$40 trillion on the sidelines, where investors are looking for better returns. The [fund] is one of the world leaders in sustainable investing, and together we can help make the global market system work for everyone.”
Hiro Mizuno, the fund’s executive managing director and chief information officer, called the partnership a unique chance for both parties to help achieve the Sustainable Development Goals and provide “practical solutions to catalyse the development of sustainable fixed income markets”.