There is little appetite for forceful engagement with high-carbon companies among large bondholders, despite widespread awareness of the risks of rising temperatures, new research finds.

ShareAction’s new report, titled “Sleeping Giants – Are bond investors ready to act on climate change?” is based on 22 in-depth interviews with asset managers, asset owners and other corporate bond market professionals to explore their attitudes to engaging with issuers about climate change.

The report finds that environmental, social, and governance (ESG) risks are well understood by bond investors and consideration of ESG factors is generally already part of their investment processes. However, bond investors balk at the suggestion they might use their ability to refuse to refinance company debt to press for stronger climate action.

Although a small number of those interviewed said they would cease to invest in a company’s bonds if it contravened relevant criteria, the majority saw only challenges. When it comes to climate change, bond investors appear to be relying on governments to bail everyone out.

ShareAction is calling on institutional bondholders to assume a more ambitious interpretation of their fiduciary duties, recognising the serious harm to beneficiaries’ interests if global temperatures are not contained beneath scientifically agreed limits. The responsible investment NGO proposes that bond investors work collaboratively to engage with high-carbon emitters, just as shareholders in such companies are already doing. The report recommends regulators clarify such actions would not run legal risks for bond investors.

Interviewees were concerned about a number of barriers to taking strong climate action:

  • The primary concern is over legal and regulatory issues with collaboration among bond holders.
  • Bond investors highlight the complexity of climate change and a lack of useful reported data.
  • Bond managers also cited a lack of clarity from asset owner clients on how to manage climate related risks.

The report finds that bondholders are focused on mitigating portfolio level climate risk, but are not yet willing to commit to action on climate change itself.

The paper concludes that the time for “tea-and-biscuits” bondholder engagement is over, and that a stronger approach is needed that sets clear conditions for ongoing refinancing. The report recommends convening an investor group to agree and promote a set of climate-related conditions required for buying future debt from high-carbon companies. A target list of such companies has already been published by the investor-led ClimateAction 100+ initiative. Sectors in focus could include mining, integrated oils, utilities and airports.

Wolfgang Kuhn, author of the report, says: “You can build your house on a hill to protect it from rising sea levels, but it won’t stop the sea from rising. Bond investors have come a long way very quickly on the sustainability dimension. What is left is to realise the power they have to create a positive impact and muster the courage to use it.”

Paul Lee, an independent expert on stewardship, says: “This is a very welcome document, setting out challenging questions for fixed income investors whilst clearly articulating why it has so far proved difficult to fully to integrate climate change considerations into investment processes.”

Marie Lassegnore, Portfolio Manager at La Française, adds: “The report is right. The industry needs to induce change quickly if we want to get anywhere near 2 degrees. There is a lot of impact potential from asset managers not being utilised yet.”

Notes to editors:

  • For more information, please contact Beau O’Sullivan at or +44203 475 7859
  • The research process entailed 17 interviews with asset owners, asset managers and issuers, based on 10 interview questions (see Appendix); 5 interviews with experts drawn from investment consultancies, rating agencies and industry bodies; and a review of a sample of publicly available investment process documents from leading asset managers/owners. All participants were assured anonymity.
  • Interviews were conducted between May and October 2018.
  • Wolfgang Kuhn, the report author, is a Fellow at ShareAction with over 20 years’ experience in fixed income markets. With a strong interest in risk management, he has been exploring approaches to sustainability in corporate bond management since 2006. His most recent role was Head of Pan-European Fixed Income at Aberdeen Asset Management. Previously, he worked for UBS, Deutsche Asset Management and DG Bank.
  • About ShareAction: ShareAction’s vision is a world where ordinary savers and institutional investors work together to ensure our communities and environment are safe and sustainable for all. Our mission is to unleash the positive potential of the mainstream investment system. To do this: We’re building a movement for change in our investment system by working with people inside and outside the industry to challenge the status quo; We’re unlocking the positive potential of the investment system by working with large and small investors to change unsustainable corporate practices; We’re reforming the investment system by advocating for change in the policies, governance, and incentives that drive behaviours in the investment industry.