25 May 2021

Expert’s View: The benefits of ESG filters in corporate bond investing


The primary aim for bond investors is to mitigate downside risk while maintaining stable income streams. In our latest Expert’s View, we dig deeper into the benefits of ESG filters in a corporate bond allocation, and review the performance drivers of ESG and non-ESG corporate bond indices over various market phases.

Facts and Overview

  • Corporate default is the worst-case scenario for bond investors, but other risks such as credit rating downgrades and associated spread widening can also impact bond portfolio returns. 
  • ESG credit takes a mainstream corporate bond benchmark and applies a sustainability screen that includes extra environmental, social and governance (ESG) standards. 
  • ESG-filtered credit indices aim to build a ‘best in class’ corporate bond exposure that could help reduce the risk of major scandals or corporate mismanagement affecting bond performance.

Our key takeaways

  • ESG filter in corporate bond indices: The Bloomberg Barclays MSCI SRI Sustainable Indices exclude issuers with poor ESG ratings and companies involved in serious controversies, as these can become progressively more dangerous to corporate financial stability.
  • Performance review: Our analysis underlines the benefits of ESG filtering at sector level in a corporate credit allocation during a sell-off, while a positive bond selection effect can materialise in a market recovery.

Chart 1: ESG credit indices offer greater exposure to top ESG issuers and higher corporate ratings

the impact of esg investing in corporate bonds

Sources: Lyxor International Asset Management, Bloomberg. Data as at 30/04/2021. Past performance is not a reliable indicator of future returns.

Our ESG corporate bond ETFs at a glance

Make a simple switch into our range of SFDR 8 compliant sustainable investment-grade and high yield bond ETFs and have your say on the kinds of businesses you’re willing to fund today and the kind of world you want to live in tomorrow. Our standard ESG-screened credit ETFs are physically replicated, come with an ambitious set of exclusions and show limited deviation from their conventional parent indices. With regulations and investment policies changing, and greener investing becoming the norm, it’s no longer “why?”, it’s “why not?”. 

Please get in touch if you’d like to learn more, or visit our ESG Hub to explore Lyxor’s full range of ESG bonds. In the meantime, have a look at our ESG credit range below:

This article is for informative purposes only, and should not be taken as investment advice. Lyxor ETF does not in any way endorse or promote the companies mentioned in this article. Capital at risk. Please read our Risk Warning below.

Bloomberg Barclays index disclaimer

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This research contains the views, opinions and recommendations of Lyxor International Asset Management (“LIAM”) Cross Asset and ETF research analysts and/or strategists. To the extent that this research contains trade ideas based on macro views of economic market conditions or relative value, it may differ from the fundamental Cross Asset and ETF Research opinions and recommendations contained in Cross Asset and ETF Research sector or company research reports and from the views and opinions of other departments of LIAM and its affiliates. Lyxor Cross Asset and ETF research analysts and/or strategists routinely consult with LIAM sales and portfolio management personnel regarding market information including, but not limited to, pricing, spread levels and trading activity of ETFs tracking equity, fixed income and commodity indices. Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views and reports. Lyxor has mandatory research policies and procedures that are reasonably designed to (i) ensure that purported facts in research reports are based on reliable information and (ii) to prevent improper selective or tiered dissemination of research reports. In addition, research analysts receive compensation based, in part, on the quality and accuracy of their analysis, client feedback, competitive factors and LIAM’s total revenues including revenues from management fees and investment advisory fees and distribution fees.