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  • ESG ratings comprise many nuanced factors. It's critical to understand how they are determined before applying them.

  • Each company approaches sustainability differently. Scoring a company's ESG credentials means evaluating a variety of factors

  • There is no one way to calculate ESG ratings. Providers each have their own systems but tend to follow a similar process.

  • Scores from providers don't always agree. We found MSCI and Sustainalytics scores have positive but low correlations.

  • Geography influences ESG ratings. European companies generally have higher ESG ratings.

  • Chart depicting how, on average, European issuers have higher combined ESG scores.

  • Chart depicting how ESG ratings are relatively stable year to year.

  • Focussing on ESG can introduce bias. Corporations with strong ESG ratings tend to have lower credit spreads.

  • Chart depicting that high-ESG portfolios have lower spreads over Treasury bonds than low-ESG portfolios.

  • The main takeaway? It's essential to compare like for like when using ESG ratings in bond portfolios.

  • ESG ratings comprise many nuance...
  • Each company approaches sustaina...
  • There is no one way to calculate...
  • Scores from providers don't ...
  • Geography influences ESG ratings...
  • Chart depicting how, on average,...
  • Chart depicting how ESG ratings ...
  • Focussing on ESG can introduce b...
  • Chart depicting that high-ESG po...
  • The main takeaway? It's esse...
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About the authors

Lev Dynkin is the founder and Global Head of the Quantitative Portfolio Strategy (QPS) Group at Barclays Research. Dynkin and the QPS group joined Barclays in 2008 from Lehman Brothers, where the group had been a part of Fixed Income Research since 1987. The Institutional Investor magazine survey ranked the QPS group #1 in the category of Quantitative Analysis for over a decade in the US, as well as top-ranked it in Europe.

 

Dynkin began his career as a research scientist in the area of theoretical and mathematical physics after obtaining his PhD in physics from the University of St. Petersburg, Russia. He is a member of the editorial advisory boards of the Journal of Portfolio Management and Journal of Fixed Income. Dynkin has co-authored with his colleagues several books on quantitative portfolio management.

 

Albert Desclée is a Managing Director in the QPS Group at Barclays Research, based in London, and is responsible for its European activities. He advises investors on portfolio construction, including benchmark selection, risk management, asset allocation, choice of investment style and optimal risk budgeting.

 

Albert joined Barclays in 2008 from Lehman Brothers, where he had the same responsibilities. Prior to joining Lehman Brothers’ Research department, he worked at Salomon Brothers in London, where he was in charge of fixed income index analytics and portfolio construction advisory. Albert graduated from the Catholic University of Louvain (Belgium) and obtained an MBA from INSEAD.

Mathieu Dubois is an analyst in the QPS Group, based in London. Prior to joining Barclays in 2018, he worked as a quantitative analyst at Prudential plc, conducting multi-asset research. He studied mathematics at the Swiss Federal Institute of Technology (EPFL) and Paris VI University, and he holds a PhD from the London School of Economics.

 

Jay Hyman is a Managing Director in the QPS Group within Barclays' Research team. Based in Tel Aviv, Jay advises clients around the globe on portfolio management relative to traditional benchmarks or liabilities. He has published research on topics including risk budgeting, performance attribution, portfolio optimization, style analysis, cost of constraints, sufficient diversification and index replication. Jay joined Barclays in 2008 from Lehman Brothers. He holds a PhD in Electrical Engineering from Columbia University in New York.

 

Simon Polbennikov is a Director in the QPS Group. He is responsible for empirical studies on quantitative strategies and investment styles in fixed income; benchmark customization; tactical allocation; and hedging. Simon joined Barclays in October 2008 from Lehman Brothers, where he held a similar role. He studied physics at Moscow State University, Russia, and received a PhD degree in empirical finance from Tilburg University, Netherlands.

Related content

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ESG investing yields positive returns in select bond markets

An expanded Impact Series study finds that tilting portfolios in favour of high ESG bonds can generate positive returns across various markets, geographies and sectors.

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Examining E, S and G performance across sector portfolios

Investigation into the performance effect of Environment, Social and Governance (ESG) ratings on sector-specific bond portfolios.

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