Abstract
There is a growing recognition that environmental, social and governance (ESG) factors are important in fostering long-term sustainable growth and sovereign credit improvements. This chapter describes how PIMCO integrates ESG and sustainability themes into its sovereign fixed income investment process. It starts by reviewing how ESG and sustainability factors are incorporated into our sovereign credit risk analysis and how ESG factors are considered in investment portfolios. ESG-related factors in particular have been a focus of discussion since the global financial crisis in 2008, which drove a seismic shift in societal preferences, income distribution, political choices, and the growth of China. Traditional sovereign credit analysis focuses on financial and macroeconomic variables that materially affect a country’s probability of default and the expected loss if default occurs.
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