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Sustainable Investing
December 12, 2022

Fixed Income 2022 Engagement Report

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December 12, 2022

Fixed Income 2022 Engagement Report

Sustainable Investing

Fixed Income 2022 Engagement Report

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December 12, 2022


Engagement and sustainability advocacy are increasingly important tools for driving positive change and capturing potential alpha opportunities. As active bond investors, we believe we have a duty to leverage our access to a variety of debt-issuing organisations and to express our expectations around how these organisations should improve their processes and practices, as we deploy capital toward positive environmental and social outcomes.

Our Fixed Income team continues to engage on an ongoing basis with issuers across the various asset classes that we cover. Over the past 12 months,1 we conducted 145 ESG-focused engagement meetings, with three-in-four targeting carbon-intensive industries and financiers. We also translated words into action: almost one-third of the engagements influenced our investment strategy, leading us to invest in a new transaction, pass on a new issuance or reduce existing exposure.

Thematic focus: Decarbonisation & climate action remains most common topic2

In 2020, our Morgan Stanley Investment Management (MSIM) Fixed Income team ("we", the "Team") established an ESG Engagement Strategy, outlining the structure for our engagement activities, as well as priority sustainability themes, as follows:

  • Decarbonisation & Climate Action
  • Circular Economy & Waste Reduction
  • Diverse & Inclusive Business
  • Decent Work & Resilient Jobs
  • Corporate Governance & Reporting Practices (cross-cutting theme)

Over the reporting year, the Intergovernmental Panel on Climate Change (IPCC)3 published three Working Group contributions for its Sixth Assessment Report,4 with the latest one taking stock of current progress on climate change mitigation, evaluating the adequacy of national climate pledges, and reiterating the urgency of setting the global economy on a pathway aligned with a 1.5°C scenario (i.e., 1.5°C climate warming above pre-industrial era global temperatures).

In line with these developments, this year we maintained a similar thematic breakdown to last year, with over one-half of our engagements focused on environmental risks and opportunities. The majority of our meetings focused on the setting of corporate science-based emission reduction targets and on investments in more energy efficient technologies. However, we also increased our strategic focus on promoting business models that effectively manage natural capital within a circular economy. In the first half of 2022, we started to address the topic of biodiversity in greater depth, particularly with companies in the Agribusiness and Food & Beverage sectors, focusing on topics including deforestation, upstream supply chain auditing, and land conflict management, among others. Following the launch of the Taskforce on Nature-related Financial Disclosures (TNFD)5 in June 2021, we also began to encourage companies to include time-bound biodiversity commitments into their sustainability strategies and green financing frameworks, where relevant.

To read the Full report, download PDF below. 

Executive Director,
Fixed Income Sustainable Investing
Rachel Smith
Rachel Smith
Fixed Income Sustainable Investing

1 Refers to engagements conducted in the 12-month period from July 1, 2021, to June 30, 2022. The term “MSIM” generally includes each registered investment advisor owned by Morgan Stanley. However, unless otherwise noted, references to MSIM and to the “Fixed Income team” in this document do not include Eaton Vance Management, Calvert Research and Management, Atlanta Capital Management Company, or Parametric Portfolio Associates who were acquired by Morgan Stanley on March 1, 2021.
2 We usually address multiple themes across the environmental, social and governance pillars within our engagements.
3 IPCC is an intergovernmental body of the United Nations based in Geneva responsible for advancing knowledge on human-induced climate change.
4 Sixth Assessment Report — IPCC, 2022.
5 The Taskforce on Nature-related Financial Disclosures (TNFD) consists of 34 senior executives representing financial services, the corporate sector and market services companies.

The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.

This general communication, which is not impartial, is for informational and educational purposes only, not a recommendation. Information does not address financial objectives, situation or specific needs of individual investors.

Any charts and graphs provided are for illustrative purposes only. Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal.

There is no assurance strategies that incorporate ESG factors will result in more favorable investment performance.

Prior to making any investment decision, investors should carefully review the strategy’s / product’s relevant offering document. For the complete content and important disclosures, refer to the pdf.


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