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Yet looking at GDP alone has its limits. The UK, for example, imports a relatively high volume of foreign goods, the emissions for the production of which are accounted for on other countries’ balance sheets. Some experts argue that imported CO2 emissions should be added to the importer's carbon footprint. But this is difficult to capture with any degree of accuracy. Ultimately, we believe each government is responsible only for its domestic policy; they do not have direct control over how their imports are produced.

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Yet looking at GDP alone has its limits. The UK, for example, imports a relatively high volume of foreign goods, the emissions for the production of which are accounted for on other countries’ balance sheets. Some experts argue that imported CO2 emissions should be added to the importer's carbon footprint. But this is difficult to capture with any degree of accuracy. Ultimately, we believe each government is responsible only for its domestic policy; they do not have direct control over how their imports are produced.

Based on today’s level of emissions relative to GDP, bond investors should reward Western Europe (particularly Scandinavia). Some emerging markets, such as Mexico, are also relatively green. To tackle global warming, though, fixed income investors also have a duty to incentivise the laggards to reduce emissions. In other words, bond investors should consider allocating capital to countries whose carbon emissions are falling at the steepest rate relative to the size of their economy (see Fig. 1).

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Based on today’s level of emissions relative to GDP, bond investors should reward Western Europe (particularly Scandinavia). Some emerging markets, such as Mexico, are also relatively green. To tackle global warming, though, fixed income investors also have a duty to incentivise the laggards to reduce emissions. In other words, bond investors should consider allocating capital to countries whose carbon emissions are falling at the steepest rate relative to the size of their economy (see Fig. 1).

Yet looking at GDP alone has its limits. The UK, for example, imports a relatively high volume of foreign goods, the emissions for the production of which are accounted for on other countries’ balance sheets. Some experts argue that imported CO2 emissions should be added to the importer's carbon footprint. But this is difficult to capture with any degree of accuracy. Ultimately, we believe each government is responsible only for its domestic policy; they do not have direct control over how their imports are produced.

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Based on today’s level of emissions relative to GDP, bond investors should reward Western Europe (particularly Scandinavia). Some emerging markets, such as Mexico, are also relatively green. To tackle global warming, though, fixed income investors also have a duty to incentivise the laggards to reduce emissions. In other words, bond investors should consider allocating capital to countries whose carbon emissions are falling at the steepest rate relative to the size of their economy (see Fig. 1).

Yet looking at GDP alone has its limits. The UK, for example, imports a relatively high volume of foreign goods, the emissions for the production of which are accounted for on other countries’ balance sheets. Some experts argue that imported CO2 emissions should be added to the importer's carbon footprint. But this is difficult to capture with any degree of accuracy. Ultimately, we believe each government is responsible only for its domestic policy; they do not have direct control over how their imports are produced.