Fixed income investors look to ethical funds – but do they pay?

Of all asset classes, fixed income has been one of the slowest to embrace ethical investment. Thanks in part to the growing influence of sovereign wealth funds, this may be set to change. But for many, lingering questions about whether constraining your investment universe hampers your potential returns have yet to be answered.

The catastrophic explosion on BP’s Deepwater Horizon oil rig on April 20, causing significant damage to both the Gulf of Mexico and BP’s reputation, brought home the perils of ignoring environmental and other non-financial concerns in weighing up potential investments.

But ethical investment is not something the fixed income industry has embraced as readily as other asset classes. Ethically screened credit funds remain comparatively rare, with some notable presences on the broader SRI scene such