With its Nordea 1 - Emerging Stars Bond Fund, Nordea has brought environmental, social and governance (ESG) issues and engagement to fixed income investment and sovereign bonds.

The fund benefits from a proprietary ESG model that goes beyond simply adhering to an exclusion list. Members of the portfolio management team participate in international working groups and collaborative forums in order to engage with sovereigns and help them define ESG issues in the emerging markets sovereign space.

Nordea recently launched an engagement with the Brazilian government to address deforestation. The effort resulted in direct discussions with senior Brazilian government officials, giving Nordea's investors a means to effect change.

Nordea also enhanced the fund's ESG exposure via its non-sovereign exposure. It argues that quasi-sovereign issuers tend to be less efficient and less transparent than corporate issuers, so it replicates the benchmark's quasi-sovereign exposure through higher-quality corporate bonds whose issuers demonstrate positive ESG trends. This, Nordea states, combines expert bottom-up selection and portfolio construction with the best of ESG analysis to maximise performance while minimising both ESG and financial risk.

"Emerging markets fixed income is both challenging and rewarding when it comes to ESG integration," said Thede Rüst, manager of Nordea 1 – Emerging Stars Bond Fund. "We continuously work with our clients to generate attractive returns whilst maximising positive development impact. We hope that all our peers will join us and that fixed income with true ESG integration will become the norm – we need to close the sustainable development goals financing gap fast."

"Nordea has an innovative solution to integrating ESG into sovereign bonds with positive engagement success, "said one Environmental Finance Sustainable Investment Awards judge. While another added that Nordea's "engagement deserves a special mention" and the firm's "tools also are above market average".