Opportunities for engagement are different for fixed income investments, as the relationship between an issuer and a debt holder is quite different to that between an issuer and an equity holder. ESG risks can impact the valuation of both equity and debt, but the bond holder's ability to initiate change in the issuer to reduce risk is limited when compared with the power of an equity holder. This does not mean that debt investors are unable to influence management decisions at all. The cost of debt is a key factor for companies and can contribute significantly to the long-term profitability of their investments. Any risks which potentially impact the likelihood of repayment, including ESG risks, will generally result in investors demanding a higher yield, which increases the cost of debt and creates an incentive for management to reduce those risks.
For example, BlueBay meets with issuers (particularly in relation to primary issuances) as part of its routine investment research process and has an opportunity to raise ESG-related matters. ESG-focused engagements are prioritized using a risk-based approach, which involves analyzing material ESG risks facing the issuer, the issuer's ESG score and the size of the investment.