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Colonial First State Global Asset Management (including First State Investments)

PRI reporting framework 2016

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income

ESG incorporation in actively managed fixed income

Implementation processes

FI 04. Incorporation strategies applied

04.1. (1)組織でアクティブ運用する債券投資について、どのESG組み入れ戦略や組み合わせを使用しているか、および(2)各戦略が適用されるアクティブ運用債券投資合計の割合(+/- 5%)を記載してください。

SSA
0 スクリーニングのみ
0 テーマのみ
100 統合のみ
0 スクリーニング + 統合戦略
0 テーマ + 統合戦略
0 スクリーニング + テーマ戦略
0 3つの戦略すべての組み合わせ
0 組み入れ戦略を適用していない
100%
社債(金融)
0 スクリーニングのみ
0 テーマのみ
100 統合のみ
0 スクリーニング + 統合戦略
0 テーマ + 統合戦略
0 スクリーニング + テーマ戦略
0 3つの戦略すべての組み合わせ
0 組み入れ戦略を適用していない
100%
社債(非金融)
0 スクリーニングのみ
0 テーマのみ
100 統合のみ
0 スクリーニング + 統合戦略
0 テーマ + 統合戦略
0 スクリーニング + テーマ戦略
0 3つの戦略すべての組み合わせ
0 組み入れ戦略を適用していない
100%
証券化商品
0 スクリーニングのみ
0 テーマのみ
100 統合のみ
0 スクリーニング + 統合戦略
0 テーマ + 統合戦略
0 スクリーニング + テーマ戦略
0 3つの戦略すべての組み合わせ
0 組み入れ戦略を適用していない
100%

04.2. 特定のESG組み入れ戦略を選択している主な理由と、使用する戦略の組み合わせを説明してください。

We have four fixed income and credit teams:

  • Global Unconstrained Fixed Income (this is the team based in Louisville)
  • Asian Fixed Income
  • Emerging market Debt
  • Australian Fixed Income & Global Credit. 

Like our equity teams our fixed income teams have developed their own approaches to ESG integration which complements their investment processes. The Asian and USA FI&C teams share significant elements of their investment process with the Global team, including analyst resources. The US team joined the firm in 2014.

We believe that ESG issues have a direct impact upon a company's risk and therefore its probability of default. As risk turns into a liability for company, it impacts cash flow and therefore both its debt cost and credit ratings. 

ESG issues can impact on a sovereign's ability to generate sustainable revenues or potentially increase its future costs, affecting its ability to repay bond holders.

04.3. 補足情報。 [任意]


FI 05. ESG issues and issuer research

05.1. 発行体に対するESG分析の一部として体系的に調査するESG要因を記載してください。

適用する選択肢を記入してください
SSA
社債(金融)
社債(非金融)
証券化商品
環境データ
社会的データ
ガバナンスデータ

05.2. ESG情報の書式と主な情報源を記載してください。

この情報の提供者を説明してください

specify description

          Multiple external sources including NGO, academic, multilateral, development organisation and government research sources etc.
        
この情報の提供者を説明してください

specify description

          Multiple external sources including NGO, academic, multilateral, development organisation and government research sources etc.
        
この情報の提供者を説明してください

specify description

          Multiple external sources including NGO, academic, multilateral, development organisation and government research sources etc.
        
この情報の提供者を説明してください

specific description

          Multiple external sources including NGO, academic, multilateral, development organisation and government research sources etc.
        
この情報の提供者を説明してください

specify description

          Multiple external sources including NGO, academic, multilateral, development organisation and government research sources etc.
        

05.3. 使用されているESG情報を簡単に説明してください。ESG組み入れ戦略全体における情報源の違いを明らかにしてください。

We subscribe to a number of ESG research services including Sustainalytics, MSCI Governance research and Reprisk. Raw ESG data is also available through Bloomberg. We have integrated these external ESG research providers ratings with Bloomberg to provide efficient access for analysts. 

In addition to these sources we have access to sell side research, NGO, academic, multilateral, development organisation and government research sources.

For example for sovereign issuers we use sources like: the Corruption Perception Index (Transparency International) Human Development Index (United Nations Development Program) Ease of Doing Business (World Bank) Fragile State Index (Fund For Peace) Government Effectiveness Index (World Bank) Energy Sustainability Index (World Energy Council) among others. 

The responsible investment team also distribute research reports and other information to the investment teams, however the primary responsibility for sourcing information rests with each team. 

We have found company level information easier to source but not always relevant at the fixed income security level.

05.4. 補足情報。 [任意]


FI 06. Processes to ensure analysis is robust

06.1. 組織のESG調査プロセスの堅牢性を確保する方法を記載してください。

specify description

          The credit research process has a quality check by Head of Research / Manager Credit who also reviews all ESG assessments to ensure they're robust.
        

06.2. ESG情報または分析を投資チーム内で共有する方法を記載してください。

06.3. 補足情報。[任意]

We have a centralised research database and opinion management system (ION) which all teams have access to. ESG ratings and assessments are captured in this system. 

Two teams reported that ESG information is a standard item of summaries, three teams reported that ESG issues are required to be discussed at investment meetings and three teams answered that record capture how ESG information is incorporated into investment decisions. 


(C) Implementation: Integration

FI 14. Integration overview

14.1. ESGを従来の財務分析に統合するアプローチを説明してください。

We have four fixed income and credit teams:

  • Global Fixed Income and Credit
  • Emerging market Debt,
  • Asian Fixed Income and Credit and
  • USA Fixed Income and Credit

Like our equity teams our fixed income teams are developing their own approaches to ESG integration which complements their investment processes. The Asian and USA FI&C teams share significant elements of their investment process with the Global team, including analyst resources.

The approach to integrating ESG into traditional financial analysis is different for different issuer types and investment teams as described in the relevant sections below. 

14.2. 投資する債券の各種類に対してESG統合アプローチをどのように調整するのか説明してください。

SSA

ESG issues can impact on a sovereign's ability to generate sustainable revenues or potentially increase its future costs, affecting its ability to repay bond holders.

For the Fixed Income and Credit teams ESG factors are incorporated in the following way:

The team is still at an initial stage of incorporating ESG issues into our assessment for sovereign issuers. Many of the indicators and data the team use to arrive at their assessment of ESG risks do not apply for certain sovereign issuers. For instance, country or corporate criteria for assessing ESG risks do not apply for supranationals. These issuers have a social or sustainable policy objective but there is limited reporting on ESG performance to enable bond investors to assess and monitor these risks. The challenge is to find the appropriate data in order to assess the risks for a range of sovereign issuers and to understand how ESG risks impact the risk of default for these issuers.

For the emerging market debt team ESG factors are incorporated in the following way.

Issues are identified and considered in the course of the team's investment analysis. At the core of their process is the Key Factor Model (KFM). The KFM is comprised of six factors, or angles, from which we approach the analysis of the issuers in the team's investment universe. Three of these factors are intimately related to RI and stewardship: fiscal policy, politics, and structural reform.

The team seeks to monitor the investment restrictions put in place by the national and supranational entities relevant to their universe including: national foreign policy measures, United Nations sanctions, European investment restrictions, among others.

The majority of information the team needs in order to analyse sovereign issuers is publicly available through National Statistics Offices. However, it is important for the analysts to spend time on the ground and observe country conditions first-hand to verify whether the statistics or the news is giving the full picture. This time spent on the ground can include meetings with government officials, but a great deal can also be gauged simply by observing the surrounding environment.

社債(金融)

Credit and Fixed Income Teams

Assessment and monitoring

Analysts identify ESG risks during their bottom-up credit research. We use customised ESG rankings as a starting point for assessments. Analysts consider these alongside their own research with reference to a variety of other external sources.

By analysing and assessing ESG issues within a company, we can identify sources of non-financial risk. In line with our credit philosophy of avoiding the losers, we are able to identify companies with a higher default risk than the balance sheet implies. This gives us greater insight than that offered by a rating from a traditional credit agency.

Integration

The team assigns a proprietary internal credit rating (ICR) to every bond we review. The ICR is a forward looking measure of default risk and is one of the key outputs of our research process. It reflects all risks relevant for that issuer, including ESG risk. Our ICR is on the same scale as ratings assigned by the ratings agencies but is often materially different for individual issuers.

The ICR is also used by the credit portfolio managers when making their decision to buy or sell bonds and to determine position size for the funds that we manage. The Head of Credit Research is responsible for ensuring the consistency and quality of the ESG inputs. 

EMD Team

Assessment and monitoring

ESG issues are identified and considered in the course of the Team’s investment analysis. At the core of the process is the KFM which is comprised of six factors, from which we approach the analysis of the issues in our investment universe.

One of the key factors in our country analysis is politics. In emerging countries, where democracies are relatively fragile and young, it is not uncommon for elections to be highly polarised. The political spectrum can be quite broad, and so is the range of possible outcomes when key elections are held. In this context, we try to gauge social cohesion, to ensure that whatever the election outcome, the government will enjoy a broad and diverse base of support it. To the extent that it may not be the case, the willingness to service their debt by the incoming government could be challenged or questioned.

Integration

ESG issues are complex and while the issues of fiscal policy, politics and structural reform are systematically assessed through the KFM, the approach to incorporating ESG actors is still evolving. Areas where we recognise the relevance and are working to incorporate ESG into our investment process include managing natural resources, social issues and structural reform.

The World Bank produces the Worldwide Governance Indicators (see country exposure table above). Of the six indices (Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption) we found that the Government Effectiveness is statistically significant in explaining the level of country spreads. Although the indices are computed on an annual basis, it still provides us with a range of reference for what the spreads should be for each country.

社債(非金融)

Credit and Fixed Income Teams

Assessment and monitoring

Analysts identify ESG risks during their bottom-up credit research. We use customised ESG rankings as a starting point for assessments. Analysts consider these alongside their own research with reference to a variety of other external sources.

By analysing and assessing ESG issues within a company, we can identify sources of non-financial risk. In line with our credit philosophy of avoiding the losers, we are able to identify companies with a higher default risk than the balance sheet implies. This gives us greater insight than that offered by a rating from a traditional credit agency.

Integration

The team assigns a proprietary internal credit rating (ICR) to every bond we review. The ICR is a forward looking measure of default risk and is one of the key outputs of our research process. It reflects all risks relevant for that issuer, including ESG risk. Our ICR is on the same scale as ratings assigned by the ratings agencies but is often materially different for individual issuers.

The ICR is also used by the credit portfolio managers when making their decision to buy or sell bonds and to determine position size for the funds that we manage. The Head of Credit Research is responsible for ensuring the consistency and quality of the ESG inputs. 

EMD Team

Assessment and monitoring

ESG issues are identified and considered in the course of the Team’s investment analysis. At the core of the process is the KFM which is comprised of six factors, from which we approach the analysis of the issues in our investment universe.

One of the key factors in our country analysis is politics. In emerging countries, where democracies are relatively fragile and young, it is not uncommon for elections to be highly polarised. The political spectrum can be quite broad, and so is the range of possible outcomes when key elections are held. In this context, we try to gauge social cohesion, to ensure that whatever the election outcome, the government will enjoy a broad and diverse base of support it. To the extent that it may not be the case, the willingness to service their debt by the incoming government could be challenged or questioned.

Integration

ESG issues are complex and while the issues of fiscal policy, politics and structural reform are systematically assessed through the KFM, the approach to incorporating ESG actors is still evolving. Areas where we recognise the relevance and are working to incorporate ESG into our investment process include managing natural resources, social issues and structural reform.

The World Bank produces the Worldwide Governance Indicators (see country exposure table above). Of the six indices (Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption) we found that the Government Effectiveness is statistically significant in explaining the level of country spreads. Although the indices are computed on an annual basis, it still provides us with a range of reference for what the spreads should be for each country.

証券化商品

We do not  integrate ESG factors for securitised investments. 

14.3. 補足情報。 [任意]


FI 15. Integration - ESG information in investment processes

15.1. ESG情報が、通常、投資プロセスの一部としてどのように使用されるのか記載してください。

当てはまるものをすべて選択してください
SSA
社債(金融)
社債(非金融)
証券化商品​
ESG分析をファンダメンタル分析に組み込んでいる
ESG分析を証券ウェイト判断に組み込んでいる
ESG分析をポートフォリオ構築判断に組み込んでいる
ESG分析は組織内の信用格付けまたは評価の標準要素になっている
発行体のESG分析が、投資委員会の標準議題になっている
組織内の調査レポートまたは同様文書で定期的にESG分析が取り上げられる
ESG分析は、進行中のポートフォリオ監視の標準項目に入っている
ESG分析は、すべての組織内の発行体概要または同様文書に含まれる
その他(具体的に記載してください)

15.2. 補足情報 [任意]

The investment team responses for each item were:

ESG analysis is integrated into fundamental analysis -  All teams answered yes for corporate issuers, one team answered yes for SSA

ESG analysis is integrated into security weighting decisions - One team answered yes for corporate issuers

ESG analysis is integrated into portfolio construction decisions - One team answered yes for SAA, another two teams maximunm portfolio weights are function of the internal credit rating for corporate issuers which incorporate ESG analysis. 

ESG analysis is a standard part of internal credit ratings or assessment - All teams answered yes for corporate issuers

ESG analysis for issuers is a standard agenda item at investment committee meetings - One team answered yes for SAA

ESG analysis is regularly featured in internal research notes or similar - All teams answered yes for corporate issuers, one team answered yes for SSA

ESG analysis is a standard feature of ongoing portfolio monitoring - All teams answered yes for corporate issuers

ESG analysis features in all internal issuer summaries or similar documents - All teams answered yes for corporate issuers,  one team answered yes for SSA


FI 16. Integration - E,S and G issues reviewed

16.1. 組織の統合プロセスでESG問題をどのように検討するか示してください。

E(環境)
S(社会)
G(ガバナンス)
SSA

Environmental

Social

Governance

社債(金融)

Environmental

Social

Governance

社債(非金融)

Environmental

Social

Governance

証券化商品

Environmental

Social

Governance

16.2. 組織の統合プロセスでE/S/G要因を検討する方法を詳しく説明してください。

EMD Team

In the particular context of EMD, ESG considerations
have always been part of our country research. We do not look at ESG factors as an “add-on” or an additional step in the investment analysis. ESG considerations are an integral part of our forward-looking analysis of politics, structural reform and fiscal policy in each country. The main tool we utilise when analysing the countries we invest in is our Key Factor Model. The Key Factor Model is comprised of six factors that have proven to have the ability to explain the trends that over time, determine country spreads. ESG considerations are deeply embedded in the model. An integral part of our investment process is to conduct research trips to the countries we invest in. We seek to gain a deeper understanding of the relevant trends and to benefit from a first hand, on the ground experience to complement our analysis of macro financial conditions. Typically these trips include meetings with government officials and this has enabled us to raise, when appropriate, ESG concerns. The team has developed an internal database that offers a comprehensive coverage of ESG metrics for the vast majority of the countries researched based on six indicators. The database is updated as and when new information becomes available. Corruption Perception Index (Transparency International) Human Development Index (United Nations Development Program) Ease of Doing Business (World Bank) Fragile State Index (Fund For Peace) Government Effectiveness Index (World Bank) Energy Sustainability Index (World Energy Council)

Fixed Income and Credit Teams

Given the sustainability mission for most supranationals, the focus of assessment is on performance on these
issues to understand what checks and balances there are, how the supras mitigate these risks or rectify their
processes to ensure they meet their policies.

Fixed Income and Credit Teams

The environmental and social risks we would like to understand are the indirect risks and not the bank's own risks, ie. direct environmental and social footprint. To date, the information is very thin with no research providers
performing this analysis.

Fixed Income and Credit Teams

We use data and analysis by external research providers, as well as brokers and other sources, to form an
assessment on the risk for issuers.

Fixed Income and Credit Teams

This assessment is more challenging as the risks hinges on the contract and parties to the contract. We assess the risks in its component to form an overall view.

16.3. 補足情報。 [任意]

In response to the question on securitised bonds only the Global Fixed Income and Credit team responded 'systematically' and so we have selected 'occasionally' as our response. 


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