What the mega-crises have done to Lebanese firms and workers
Implementing ESG in investment approaches presents four main challenges. First, a uniform definition of ESG is still lacking, and investors consider many factors under the broad term ESG. Second, investors lack consistent accounting frameworks and disclosures, constraining their ability to compare and assess investments across all areas of ESG. Third, empirical research on the impact of applying ESG on financial returns is still inconclusive, especially in the fixed-income space. Fourth, measuring whether impact investment achieves its desired effects is difficult. However, the most important constraint for fixed-income investors is the size of the thematic or labeled bond market, which finances entities and projects with ESG objectives. This market is very small, concentrates on few issuers, and has lower liquidity than the market for conventional bonds. The market represents about 3.5 percent of total global bond issuance. The investable universe is $621 billion, representing a small fraction (i.e., 0.5 percent) of the global bond market. Central banks use conservative investment guidelines, which narrows the availability of possible ESG investments. These institutions typically invest in sovereign, supranational, and agency issuers with high credit ratings, further reducing the set of eligible thematic bonds. Central banks would have to consider alternative investments with higher risk, such as corporate bonds, and for many banks this is not a viable solution.
