Sustainable Investment Awards 2021

ESG research of the year (fixed income): Aegon AM - Sustainability alignment in sovereign portfolios

Compiling data from 193 countries with over 110 indicators, Aegon Asset Management's (Aegon AM) sustainability alignment in sovereign portfolios research concludes that sustainability alignment can improve a portfolio's risk and return profile.

Bruno MaradeiThe research, released in February 2021, investigated how to incorporate sustainability into sovereign portfolios. Aegon AM used the United Nations' Sustainable Development Goals (SDGs) to group its 110 indicators in order to identify specific areas of attention to better understand the context of any bond issuer. Aegon AM then uses these indicators to give countries a score for the different SDGs. But while this can help identify leaders and laggards, it is not automatic that those with a higher score are on the right track, and so qualitative assessment is also required.

"We expect sustainable countries to be more resilient in the long-term under certain scenarios, such as climate change and social instability due to inequality. Achieving sustainable returns in a stable manner is especially relevant for insurance clients with long-term investment horizons," said Brunno Maradei, global head of responsible investment at Aegon AM. "It is also important for us to be able to meet the strong client demand for investment solutions well aligned to the SDGs."

The research's conclusions also included that momentum matters. Besides single period SDG scores, it is important to assess sustainability momentum over time. Sustainability momentum measures the amount of progress made in the previous years in different SDGs. Aegon AM also argues the research helps determine which countries will make proper use of funding to transition toward sustainability, while providing investors with a potential pick-up.

"Remarkably comprehensive sustainability framework with a high degree of fair-mindedness, subtlety, forward-looking ethos, and a commitment to impact and engagement," said one Environmental Finance Sustainable Investment Awards judge.