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The effects of environmental, social and governance (ESG) factors on the default risk of a fixed income portfolio
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Orientador(es)
Resumo(s)
The present report is a complement of the group report“ Responsible Investing at BPI GA” elaborated as part of the Consulting Project developed alongside BPI gestão de ativos. This research argues that it is possible to reduce the overall default risk of a corporate bond portfolio through the implementation of an ESG Momentum strategy. Two different strategies were tested: one where the distribution of weights was made at a portfolio level and other at an industry level. The ESG metrics used were the ESG score and ESG Combined score provided by refinitiv. The study found a statistically significant decrease of overall default risk for all the strategies tested, leading to the conclusion that it is possible to reduce the default risk of a corporate bond portfolio by adding an extra ESG layer to its construction. However, returns have mixed results for the different strategies tested. This research can serve as support for the client to maintain its transition towards being a more responsible investor.
Descrição
Palavras-chave
Corporate bond portfolio Default risk ESG scores Momentum strategy