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Bank Julius Baer & Co. Ltd.

PRI reporting framework 2017

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. Indicate 1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and 2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.

Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%

04.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

Responsible Investment ensures Julius Baer’s overall investment process takes financial material Environmental, Social and Governance (ESG) risks into consideration in order to achieve long-term economic benefits for our clients, and raise awareness and transparency of these risks.

In addition, we aim to offer our clients a diversified portfolio of sustainable investments in various asset classes and currencies in line with their individual requirements. As a specific sub-category of our discretionary management offering, the sustainability mandate also applies the best-in-class filter in addition to the ESG integration. It offers our clients the possibility to participate in a globally diversified universe of forward-thinking, responsible and innovative companies. The top 30% companies related to each sub-sector become part of the investable universe. The investments are made according to themes, specifically addressing the relevant challenges of the near future, such as energy efficiency, education, mobility, biodiversity or water.

04.3. Additional information [Optional].


FI 05. ESG issues and issuer research (Private)


FI 06. Processes to ensure analysis is robust

06.1. Indicate how you ensure that your ESG research process is robust:

06.2. Describe how your ESG information or analysis is shared among your investment team.

06.3. Additional information. [Optional]


(A) Implementation: Screening

FI 07. Types of screening applied

07.1. Indicate the type of screening you conduct.

Select all that apply
Corporate (financial)
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

07.2. Describe your approach to screening for internally managed active fixed income

Julius Baer's sustainability mandate applies weapon and nuclear screening and only selects the top 30% ESG performers for internally managed active fixed income investment.

07.3. Additional information. [Optional]


FI 08. Negative screening - overview and rationale

08.1. Indicate why you conduct negative screening.

Corporate (financial)

Corporate (fin)

Corporate (non-financial)

Corporate (non-fin)

08.2. Describe your approach to ESG-based negative screening of issuers from your investable universe.

The following types of company are excluded from the sustainability mandate universe: 1) companies that manufacture strategic elements or complete solutions for nuclear weapons systems; 2) manufacturers of complete weapons systems; 3) owners or operators of nuclear power plants

08.3. Additional information. [Optional]


FI 09. Examples of ESG factors in screening process (Private)


FI 10. Screening - ensuring criteria are met

10.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening?
Positive/best-in-class screening

10.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 11. Thematic investing - overview (Private)


FI 12. Thematic investing - themed bond processes

12.1. Indicate whether you encourage transparency and disclosure relating to the issuance of themed bonds as per the Green Bonds Principles:

12.2. Describe the actions you take when issuers do not disburse bond proceeds as described in the offering documents.

We have not encountered any such issues, as transparency is hugely improved in the green bond market.

12.3. Additional information. [Optional]


FI 13. Thematic investing - assessing impact

13.1. Indicate how you assess the environmental or social impact of your thematic investments

13.2. Additional information. [Optional]


(C) Implementation: Integration

FI 14. Integration overview

14.1. Describe your approach to integrating ESG into traditional financial analysis.

Responsible Investment ensures Julius Baer’s overall investment process takes financial material Environmental, Social and Governance (ESG) risks into consideration in order to achieve long-term economic benefits for our clients, and raise awareness and transparency of these risks.

Responsible Investment combines financial assessment with information regarding ESG risks, and is built upon the understanding that key extra-financial factors, such as corporate governance, vulnerability to climate change, water supply stress, product safety and quality, and corruption and instability can have a significant influence on a company’s financial success. We are convinced that firms recognising the importance of these factors manage industry-specific risks more efficiently than their competitors, and will be able to report more perennial profitability and creditworthiness. In doing so, the underlying goal is to capture the entire spectrum of risks to achieve what is economically profitable for our clients in the long-run.

Aiming to minimise ESG risks in the investments of our clients, Julius Baer uses company ESG ratings to assist research analysts, portfolio managers and investment advisors to identify financial material ESG risks in the investment process. Julius Baer takes an inclusive approach by actively screening our investment universe and challenging companies with the lowest ESG ratings, in order to fully understand the entailed ESG risks in addition to traditional financial analyses. Julius Baer has set up a Responsible Investment Board to ensure governance of this integration.

14.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

Corporate (financial)

Julius Baer does not differentiate fixed income between Corporate (financial) and Corporate (non-financial) in the Responsible Investment approach. We consider fixed income investment grade a greenfield for Responsible Investment, because the ability to pay back the credit is the utmost financially material factor for investment grade fixed income. For corporate fixed income instruments with high yield credit rating, the issuers' MSCI ESG ratings are used to determine if an instrument is investable for Julius Baer. All the instruments with issuer ESG rating above CCC are investable. If the issuer's ESG rating is CCC, the responsible portfolio manager has to go through the Conflict Resolution Committee to assess whether the issuer is investable based on ESG risks analysis. If the issuer does not have an ESG rating, an internal ESG rating process must be triggered by the respective portfolio manager in order to obtain an ESG rating and identify if the Conflict Resolution Committee approval is needed.

Corporate (non-financial)

Julius Baer does not differentiate fixed income between Corporate (financial) and Corporate (non-financial) in the Responsible Investment approach. We consider fixed income investment grade a greenfield for Responsible Investment, because the ability to pay back the credit is the utmost financially material factor for investment grade fixed income. For corporate fixed income instruments with high yield credit rating, the issuers' MSCI ESG ratings are used to determine if an instrument is investable for Julius Baer. All the instruments with issuer ESG rating above CCC are investable. If the issuer's ESG rating is CCC, the responsible portfolio manager has to go through the Conflict Resolution Committee to assess whether the issuer is investable based on ESG risks analysis. If the issuer does not have an ESG rating, an internal ESG rating process must be triggered by the respective portfolio manager in order to obtain an ESG rating and identify if the Conflict Resolution Committee approval is needed.

14.3. Additional information [OPTIONAL]


FI 15. Integration - ESG information in investment processes

15.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
Corporate (financial)
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is integrated into security weighting decisions
ESG analysis is integrated into portfolio construction decisions
ESG analysis is a standard part of internal credit ratings or assessment
ESG analysis for issuers is a standard agenda item at investment committee meetings
ESG analysis is regularly featured in internal research notes or similar
ESG analysis is a standard feature of ongoing portfolio monitoring
ESG analysis features in all internal issuer summaries or similar documents
Other, specify

15.2. Additional information [OPTIONAL]


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

16.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

16.2. Please provide more detail on how you review E, S and G factors in your integration process.

Corporate (financial)

At Julius Baer we conduct an annual ESG rating review of companies in our investment universe that has been approved by the Conflict Resolution Committee or internally rated, and an ad-hoc review is conducted in case of major controversies. The review criteria are established in collaboration with external partners.

Corporate (non-financial)

At Julius Baer we conduct an annual ESG rating review of companies in our investment universe that has been approved by the Conflict Resolution Committee or internally rated, and an ad-hoc review is conducted in case of major controversies. The review criteria are established in collaboration with external partners.

16.3. Additional information.[OPTIONAL]


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