Microsoft Word - Group Work 2.docx Group Work 2 Hi everyone, In recent times, and especially since the adherence of many of the main players in the financial markets to the Principles of Responsible...

only question A and B


Microsoft Word - Group Work 2.docx Group Work 2 Hi everyone, In recent times, and especially since the adherence of many of the main players in the financial markets to the Principles of Responsible Investment (PRI), launched at the UN in April 2006, numerous changes have affected the way of investing and acting in financial markets. Thus, we can see how new ratings are assigned to companies and investment funds, categorizing them according to their sustainability approach and the factors associated with respect for the environment, governance, and social impact (ESG) of their activity. Given the importance of this trend, I would not like to end the Financial Markets Module without exploring the topic. That is why I ask you to complete the second and final Teamwork. In it, I would like the following topics to be covered: A) Review of the concept of responsible investment B) Effects on the Investment Fund industry: new ratings and classifications for companies and Investment Funds considered sustainable. C) The main investment products that reflect these trends: in this section at least Green Bonds, the European Emission Rights market and any other financial product deemed appropriate will be briefly described. Finally, I would like to know the opinion of the group on the subject: Are companies defined as sustainable more prepared to resist in the long term? Is the "Greenium" we see in Green Bonds a temporary effect? Obviously, you can use the documentation provided in Session 10 of the course as support, although I encourage you to increase the Bibliography. It is an important and topical issue. As in the previous occasion, the work will have a maximum of 1,500 words. The topics should be dealt with in a concise manner, and I will highly value your conclusions on the topic. Thank you very much in advance Foundations of ESG Investing in Corporate Bonds NOVEMBER 2020 Foundations of ESG Investing in Corporate Bonds How ESG Affected Corporate Credit Risk and Performance November 2020 Rohit Mendiratta, Hitendra D. Varsani, Guido Giese Foundations of ESG Investing in Corporate Bonds | November 2020 MSCI.COM | PAGE 2 OF 51 © 2020 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document. Executive Summary ........................................................................ 3 ESG Introduction ............................................................................. 4 Data and Methodology ................................................................... 9 Analysis Outline .......................................................................................... 9 ESG and Traditional Corporate-Bond Metrics ........................... 12 How ESG Correlates with Credit Ratings ................................................. 12 The Price of ESG in Terms of Spreads .................................................... 13 ESG Economic-Transmission Channels into Credit Risk .......... 17 Cash-Flow Channel ................................................................................... 17 Systematic-Risk Channel .......................................................................... 21 Idiosyncratic-Risk Channel ....................................................................... 26 Effectiveness of ESG Across Issuer Universes ....................................... 29 Performance of ESG .................................................................... 30 Average Performance of ESG and Its Pillars ........................................... 30 Did ESG Add Value over Traditional Credit Factors? .............................. 32 Conclusion ................................................................................... 35 Appendix ...................................................................................... 38 Appendix A1: Merton Model Framework ................................................. 38 Appendix A2: Cross-Sectional Regression Model ................................... 41 Appendix A3: Average Fundamental Statistics Tables ........................... 44 Appendix A5: Corporate-Bond Universe and ESG Profile ....................... 47 ESG Profile ................................................................................................ 48 Contents Foundations of ESG Investing in Corporate Bonds | November 2020 MSCI.COM | PAGE 3 OF 51 © 2020 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document. Executive Summary This paper extends our research on how ESG has affected equity investing to corporate bonds. Unlike with equities — where MSCI’s previous research shows that MSCI ESG Ratings had positive effects on stocks’ risk and return characteristics — we found that a corporate bondholder’s main ESG focus could be mitigating downside