Service regression

Responsible investment has taken equity markets by storm. Although its penetration into fixed income markets has been slower, it is picking up speed there too. Yet one area remains overlooked – government bonds.That’s a major oversight. After all, governments set the rules and regulations that companies and individuals follow, and without their support and investment, the world will not be able to tackle its most pressing problems – climate change in particular.Global average temperatures are already 1.2C higher than they were in the pre-industrial era. And even if countries deliver on all the carbon emission-cutting pledges made so far, that degree of warming is expected to double to 2.4C by 2100.1Fixed income investors have a key part to play in providing the capital required to keep climate change in check. While individually, investors have a negligible influence on government policy, collectively they can make a real difference – after all, the investment community holds USD88 trillion in bonds issued by governments and their agencies.2Focus on emissionsSo how might fixed income investors construct government bond portfolios in a way that has biggest possible impact in the fight against climate change?Investors in emerging market bonds are central to the transition. That’s because developing economies are more vulnerable to the physical impacts of global warming than their developed counterparts, in part due to geographical factors, but also because of weaker economic and institutional underpinnings. At the same time, emerging nations can be global leaders in many of the technologies needed for transition. But investors in developed sovereign bond markets also have a key role to play in the transition.