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So how might fixed income investors construct government bond portfolios in a way that has biggest possible impact in the fight against climate change? 

Investors in emerging market bonds are central to the transition. That’s because developing economies are more vulnerable to the physical impacts of global warming than their developed counterparts, in part due to geographical factors, but also because of weaker economic and institutional underpinnings. At the same time, emerging nations can be global leaders in many of the technologies needed for transition. But investors in developed sovereign bond markets also have a key role to play in the transition. 

In all cases, however, the key to climate-focused government bond investing is high-quality data and the ability to draw accurate conclusions from it. Only then can investors be sure of making sound capital allocation decisions.

Identifying ESG-aligned government bonds requires investors to focus on the root cause of global warming – greenhouse gas emissions. While methane and nitrous oxide clearly play a part, CO2 accounts for 74 per cent of all emissions.3 Our research  shows that emissions of the different greenhouse gases tend to be correlated; countries with high emissions of one tend to also generate a lot of the others.

The next question to tackle is how to measure and compare emissions by country. In absolute terms, bigger countries will obviously have larger greenhouse gas emissions than smaller ones. On this measure, China the biggest emitter. Looking at things on a per capita basis paints a somewhat different picture, however. Mongolia comes out in the “lead” while China emits less than the US, Russia or Australia.4 

An even more effective way is to compare emissions relative to the size of the economy – after all, it is the total level that matters from the point of view of climate.

[1] Climate Action Tracker, November 2021 report

[2] International Monetary Fund, October 2021, Fiscal policy for an uncertain world 

[3] Testing Link in Footnote, October 2021

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[3] Our world in data: Greenhouse gas emissions

[4] Our world in data: CO2 emissions per country

Focusing investments in the bonds of these nations may mean leaving out countries which are the mainstays of traditional bond indices. But that, in turn, increases diversification benefits for investors and should placate those who complain that funds that claim to embed environmental, social and governance (ESG) criteria are too often remarkably similar in their composition to non-ESG labelled ones.ky headsets, laggy connectivity and a lack of decent content held back the rise of those technologies. Advances in 5G mobile broadband and smartphones are changing that. “AR came out some time in the mid-noughties, and it didn’t really get anywhere because smartphones weren’t a thing. Then, suddenly, once smartphones came out, it all made sense,” says Alex Jenkins, creative director of the interactive arts division of Nexus Studios, a film and creative technology studio based in London and LA.

Today’s mobiles are kitted out with cameras and GPS, which make it possible to blend the real and digital. Their processing power and capabilities are increasing. Newer iPhones are equipped with LiDAR (light detection and ranging), a remote sensing tool which Jenkins describes as “a big game-changer for spatial computing.”

Today’s mobiles are kitted out with cameras and GPS, which make it possible to blend the real and digital. Their processing power and capabilities are increasing. Newer iPhones are equipped with LiDAR (light detection and ranging), a remote sensing tool which Jenkins describes as “a big game-changer for spatial computing.”