Understanding Investing

Sustainability in Bond Markets – Three Reasons for Optimism

ESG Miniseries 1 of 3: How can bond investors contribute to more sustainable financial markets? Members of our ESG investing team discuss accelerating macro trends their reasons for optimism.

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Sustainability in 2020

Olivia Albrecht: For many of us, 2020 has been a wake up call as investors realize just how interconnected, interdependent, and vulnerable the world is. Our neighbors’ problems can suddenly become your own problem overnight, and perhaps this gives us a small glimpse into the potential challenges that climate change will bring to the world.

This pandemic is arguably the first sustainable crisis of the 21st century, and it’s clear to all of us that action and awareness from investors on long term sustainability risk will only accelerate post-COVID 19. Heading into 2020, ESG investing was starting to hit its stride and post-COVID 19, this will likely accelerate, not slow those trends.

So Scott, let me turn it over to you first. How has COVID 19 and the events of 2020 impacted sustainable investments?

Accelerating Sustainability in Bond Markets

Well, I think it’s certainly accelerated the trends that were in place already. It was already an accelerating trend, but it’s even moving, I would suspect, much faster, especially once we get beyond the immediate points of this crisis, for the reasons that you mentioned.

It’s brought right into the forefront the fragility and the interconnectedness and the need to cooperate to achieve better outcomes at the global scale. And certainly that’s true for the business and investment community.

And so that’s why the focus is there and growing from the business and investment community, and we suspect that this current crisis will serve as sort of a springboard, causing more and more people to look for ways to align their investment dollars in a better way for the long term.

Reason for Optimism 1: Focused Market Innovation

I’m optimistic that sustainability is going to garner a greater share of mind in society and especially in the business and investment community. And that’s really key to maximizing growth and resilience in the medium and long term.

And that will likely manifest itself in many ways, but especially I think the year ahead, we’ll get more data, that will be better for investors. We’ll also have growth in new financial instruments that are aligned with sustainability, be they special COVID bonds or social bonds or green bonds, etc. So I think it will be a quite busy year in terms of innovation and new developments for investors to take advantage of.

Jelle, I’ll turn it to you. What are you most optimistic about in the year ahead?

Reason for Optimism 2: Air Quality & Social Equality

Jelle Brons: Yeah, if you look at the most recent periods, finally, we saw some clear skies, and I think a lot of people are actually very enthusiastic about that. We can basically realize there can be a future with clearer skies, with a better environment, with fewer cars on the road, with cleaner cars on the road, less pollution.

And the other major topic in the last month or two is the focus on inequality. And the more focus that will be on, the more progress can be made to reduce inequality based on race, based on income, based on how employees get treated. And I’m very enthusiastic about where this is going. There will be significant change, and we can help with that.

Reason for Optimism 3: ESG Momentum Into Action

Olivia Albrecht: I’ll round out the views and offer my thoughts on what I’m most optimistic about. It’s really to harness all of these pieces of the momentum around sustainable investing from issuers, from regulators, from asset managers, asset owners, to help design innovative solutions to these complicated, challenging problems that we’ve talked about today, that we’ll be able to harness them and find innovative solutions through strategies and portfolio implementation, with access to new data that’s coming from issuers, that we’re building in house in terms of proprietary research to design solutions for our clients around the world to be able to deliver not only financial performance but also sustainability linked performance.

So let me close with a couple of observations from a PIMCO perspective. For 50 years, our investment process has been harnessed and dedicated to helping millions of investors pursue their objectives, regardless of the shifting market conditions, and our leadership in ESG investing is really essential to deliver on our clients’ financial objectives, to maintain our high performance culture, by engaging our own top talent, and to support the long term, sustainable economic growth globally.

But I think we can all recognize that we all need to do more as investors, get onboard more asset managers, more issuers, more asset owners, to push together in the same direction in order to bring a cohesive change even sooner.

We hope that you will join PIMCO in bringing ESG past the rhetoric and into action. So let’s make it happen together. In the meantime, we invite you to download your own copy of our ESG investing report on PIMCO.com/esg for more detail and to read some of our engagement stories from the past year.

Disclosure


IMPORTANT NOTICE

Please note that the following contains the opinions of the manager as of the date noted, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

Past performance is not a guarantee or a reliable indicator of future results.

All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.

Socially responsible investing is qualitative and subjective by nature, and there is no guarantee that the criteria utilized, or judgment exercised, by PIMCO will reflect the beliefs or values of any one particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and PIMCO is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful. Past performance is not a guarantee or reliable indicator of future results.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission| PIMCO Europe Ltd (Company No. 2604517) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The Italy branch is additionally regulated by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act. 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CMR2020-0724-1258157

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