Government bonds: S&P Dow Jones launched the S&P ESG Pan-Europe Developed Sovereign Bond Index. This first ESG-weighted bond index from S&P Dow Jones is based on the RobecoSAM Country Sustainability Ranking. While developing this index we have analyzed the impact of the ESG tilts on the return and risk of this index (for 2008-2014).
In an effort to quantify the longer term impact of ESG factors on investment returns and risks for government bonds we have investigated the relationship between changes in political risk, which is an important part of our ESG database, and changes in government bond returns over a period of 25 years. In January 2016 the results of this study have been published in the Journal of Empirical Finance (Political risk and expected government bond returns, J. Duyvesteyn, M. Martens and P. Verwijmeren, Journal of Empirical Finance, January 2016). To our knowledge this is one of the few academic articles on ESG and government bond returns. The link below gives access to the research article via the SSRN website. The conclusions from the article are clear. Bonds from countries with an improving political risk climate tend to generate higher returns than those of countries in which political risk is deteriorating. This underlines our conclusion that ESG information is a valuable input in the investment process of our fixed income funds.