Microsoft Word - Group Work 2.docx
Group Work 2
Hi everyone,
In recent times, and especially since the adherence of many of the main players in the
financial markets to the Principles of Responsible Investment (PRI), launched at the UN
in April 2006, numerous changes have affected the way of investing and acting in
financial markets. Thus, we can see how new ratings are assigned to companies and
investment funds, categorizing them according to their sustainability approach and the
factors associated with respect for the environment, governance, and social impact
(ESG) of their activity.
Given the importance of this trend, I would not like to end the Financial Markets Module
without exploring the topic.
That is why I ask you to complete the second and final Teamwork. In it, I would like the
following topics to be covered:
A) Review of the concept of responsible investment
B) Effects on the Investment Fund industry: new ratings and classifications for
companies and Investment Funds considered sustainable.
C) The main investment products that reflect these trends: in this section at least Green
Bonds, the European Emission Rights market and any other financial product deemed
appropriate will be
iefly described.
Finally, I would like to know the opinion of the group on the subject: Are companies
defined as sustainable more prepared to resist in the long term? Is the "Greenium" we
see in Green Bonds a temporary effect?
Obviously, you can use the documentation provided in Session 10 of the course as
support, although I encourage you to increase the Bibliography. It is an important and
topical issue.
As in the previous occasion, the work will have a maximum of 1,500 words. The topics
should be dealt with in a concise manner, and I will highly value your conclusions on the
topic.
Thank you very much in advance
Foundations of ESG Investing in Corporate Bonds
NOVEMBER 2020
Foundations of ESG
Investing in Corporate
Bonds
How ESG Affected Corporate
Credit Risk and Performance
November 2020
Rohit Mendiratta, Hitendra D. Varsani,
Guido Giese
Foundations of ESG Investing in Corporate Bonds | November 2020
MSCI.COM | PAGE 2 OF 51 © 2020 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.
Executive Summary ..................................................... XXXXXXXXXX3
ESG Introduction .......................................................... XXXXXXXXXX4
Data and Methodology ................................................ XXXXXXXXXX9
Analysis Outline ....................................................................... XXXXXXXXXX9
ESG and Traditional Corporate-Bond Metrics ........ XXXXXXXXXX12
How ESG Co
elates with Credit Ratings .............................. XXXXXXXXXX12
The Price of ESG in Terms of Spreads ................................. XXXXXXXXXX13
ESG Economic-Transmission Channels into Credit Risk XXXXXXXXXX
Cash-Flow Channel ................................................................ XXXXXXXXXX17
Systematic-Risk Channel ....................................................... XXXXXXXXXX21
Idiosyncratic-Risk Channel .................................................... XXXXXXXXXX26
Effectiveness of ESG Across Issuer Universes .................... XXXXXXXXXX29
Performance of ESG ................................................. XXXXXXXXXX30
Average Performance of ESG and Its Pillars ........................ XXXXXXXXXX30
Did ESG Add Value over Traditional Credit Factors? ........... XXXXXXXXXX32
Conclusion ................................................................ XXXXXXXXXX35
Appendix ................................................................... XXXXXXXXXX38
Appendix A1: Merton Model Framework .............................. XXXXXXXXXX38
Appendix A2: Cross-Sectional Regression Model ................ XXXXXXXXXX41
Appendix A3: Average Fundamental Statistics Tables ........ XXXXXXXXXX44
Appendix A5: Corporate-Bond Universe and ESG Profile .... XXXXXXXXXX47
ESG Profile ............................................................................. XXXXXXXXXX48
Contents
Foundations of ESG Investing in Corporate Bonds | November 2020
MSCI.COM | PAGE 3 OF 51 © 2020 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.
Executive Summary
This paper extends our research on how ESG has affected equity investing to
corporate bonds. Unlike with equities — where MSCI’s previous research shows that
MSCI ESG Ratings had positive effects on stocks’ risk and return characteristics —
we found that a corporate bondholder’s main ESG focus could be mitigating
downside