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Climate-proof bond investing

Robeco is one of the leading asset managers on both quant and sustainability investing. Robeco Quant Fixed Income is integrating Robeco’s in-house sustainability data in the construction of our bond portfolios. In this internship we want to further explore the possibilities of using environmental, social and governance (ESG) factors in our bond models and portfolio construction. Most of the existing academic literature focuses on explaining spread levels with ESG factors. We want to investigate the importance of ESG factors for the return and risk of bond portfolios.

Research questions:

  • Investigate the importance of environmental data like CO2 and biodiversity for government bond investors. de Boyrie and Pavlova (2020) have recently found a significant relation between environmental data and the level of CDS spreads for 50 countries. The paper does not investigate the implications for bond investors, which is question one of this internship.
  • Badia, Pina and Torres (2019) have recently analyzed the impact of ESG on bond markets based on Robeco’s country sustainability ranking. The paper does not disentangle currency and bond returns, while the currency returns typically dominate bond returns. Also, the study focuses primarily on developed markets that typically have smaller ESG differences than emerging markets. Duyvesteyn, Martens and Verwijmeren (2016) show that momentum in the governance factor political risk help construct bond portfolios with a superior return. Question two of the internship is to analyze the impact of the broader set of ESG factors on bond portfolios including emerging markets.
  • Factor strategies are popular in equity investing, both in academic publications and in practice. Recent academic research like Martens, Duyvesteyn, Beekhuizen and Zomerdijk (2019) show factor investing can also be applied successfully in bond markets. Third research question of the internship is to explore the added value of combining ESG and quant factors like value, momentum and low-risk for bond investing.

During the internship we will challenge the intern to get new insights and more ideas on this topic.

Are you interested?
Let us know your motivation and send it together with your top-3 favorite internship topics, your CV and list of grades to SQ@robeco.nl.
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References

Badia, Pina and Torres (2019) “Financial performance of government bond portfolios based on environmental, social and governance criteria”, Sustainability, 11(9), 2514.

De Boyrie and Pavlova (2020) “Analysing the link between environmental performance and sovereign credit risk”, Applied Economics.

Duyvesteyn, Martens and Verwijmeren (2016) “Political risk and expected government bond returns”, Journal of Empirical Finance 38(A), 498-512.

Martens, Beekhuizen, Duyvesteyn and Zomerdijk (2019) “Carry investing on the yield curve”, Financial Analysts Journal 75(4), 51-63.