How to address the challenges of sovereign sustainability

What does sustainability mean to you? We recognise that this can be an emotive topic and it is difficult to consolidate disparate sustainability concepts into one investable package. What we can do however is be clear in our objectives, encourage debate and continue to innovate.

While government bonds remain an important part of an investors’ portfolio, it’s fair to say that they have lagged other asset classes, such as equities, when applying sustainability. To some extent this reflects the complexity of sustainability factors, which interrelate closely with macroeconomic drivers.

The integration of sustainability factors has been embedded into the Global Fixed Income and Currency team’s investment decisions for a number of years now.

While we believe that routinely integrating sustainability factors (environmental, social and governance) into sovereign analysis and investment decisions is incredibly important; we need to go further.

There are challenges, for instance around a sustainability income bias and data issues.

Here is how our sovereign sustainability framework, drawing on independent sources and Schroders' proprietary tools, is looking to address these.