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ACTIAM

PRI reporting framework 2017

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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. 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.

SSA
0 Screening alone
0 Thematic alone
0 Integration alone
93 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
7 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
84 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
16 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
77 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
23 All three strategies combined
0 No incorporation strategies applied
100%
Securitised
0 Screening alone
0 Thematic alone
0 Integration alone
87 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
13 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.

We chose to use a combination of screening, integration and thematic strategies for meeting our ESG goals. This combination enables us to identify the companies that violate our Fundamental Investment Principles (screening), to include ESG-considerations in our investments (integration), and to select over- and underperformers based on our selected themes. Likewise to our equities approach, we exclude or start engagement with companies that violate our ESG policies. We invest in sustainable activities (for example through green bonds) because we want to actively contribute to the transition to a low carbon economy.

04.3. Additional information [Optional].


FI 05. ESG issues and issuer research

05.1. Indicate which ESG factors you systematically research as part of your analysis on issuers.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
Environmental data
Social data
Governance data

05.2. Indicate what format your ESG information comes in and where you typically source it

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

05.3. Provide a brief description of the ESG information used, highlighting any differences in sources of information across your ESG incorporation strategies.

ACTIAM uses several sources of information. First of all, we use external data providers for both qualitative and quantitative ESG information, which is used for our screening and integration strategies. Secondly, we have an in-house ESG team that collects and provides information, including data for the thematic overlay. In addition, we use external data providers for carbon emissions data in order to calculate the carbon footprint of our portfolios. In-house FI analyst and sell-side information is used in the investment decision process.

05.4. Additional information. [Optional]


FI 06. Processes to ensure analysis is robust

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

specify description

          ESG scores are integrated into our administrative system (carbon footprint will be, too); external audit is done on the annual report including ESG information.
        

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

          Internal committees, including our CIO, evaluate the ESG policies and proposals for exclusion and inclusion, changes in the ESG scores, as well as engagement information.
        

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
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

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

All investments are screened based on the ACTIAM Fundamental Investment Principles, which constitute a negative and norms-based screening method. Positive screening is applied to a selection of portfolios and based on several themes: climate change, water, land, living and health, and vitality.

07.3. Additional information. [Optional]


FI 08. Negative screening - overview and rationale

08.1. Indicate why you conduct negative screening.

SSA

SSA

Corporate (financial)

Corporate (fin)

Corporate (non-financial)

Corporate (non-fin)

Securitised

Securitised

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

Our data provider executes an exclusionary screening every quarter, based on our Fundamental Investment Principles which incorporate Environmental, Social, and Governance issues. We exclude several products and activities, for instance nuclear weapons or riverine tailings disposal. For a number of specific active funds, an additional thematic overlay is added which leads to further exclusions, based on products, activities or ESG practices. In addition, a sector-based score is integrated into the final ESG score, which downgrades companies that are active in certain sectors, such as the oil& gas sector. A similar approach is taken for sovereign bonds in specific funds. The ESG score methodology differs from the corporate ESG score methodology as both have different relevant indicators.

08.3. Additional information. [Optional]


FI 09. Examples of ESG factors in screening process

09.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

In 2016, we updated our sovereigns policy. Exclusionary screening criteria include being listed on a UN or EU weapons embargo list, being 'not free' in Freedom House reports, result of Transparency International Corruption Perceptions Index, and World Bank governance indicators.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Companies with exposure to renewable energy production receive a positive analyst score, which increases the companies' ESG score. In our active portfolios where we steer on an ESG score that is as high as possible, this makes the companies more attractive for investment.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Companies that issue a green bond are analysed according to our green bonds policy. If the bond is considered green by ACTIAM, the bond receives a +20 ESG score. If the bond is green but we see a need for engagement on the energy transition strategy of the issuer, the bond receives a +10 analyst score and engagement is conducted.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Our Fundamental Investment Principles for companies apply to all investments and cover all UNGC as well as additional criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Companies with high performance on E, S and G issues receive a high(er) ESG score, which increases the attractiveness for investment in our active portfolios.

09.2. Additional information.


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
Norms-based screening

10.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 11. Thematic investing - overview

11.1. Indicate the type of sustainability thematic funds or mandates that your organisation manages.

11.2. Indicate whether you invest in 'green' or 'climate' bonds

11.3. Indicate whether you apply criteria (your own or those of a third party) to decide whether a bond can be considered a ‘green’ bond.

11.4. Describe your organisation’s approach to all sustainability-themed fixed income investing and the criteria you apply to determine whether a bond can be considered for a thematic fund, mandate or similar.

A combination of environmental and social themes is applied to our actively managed fund, i.e. climate change, water, land, health and vitality, and living. ACTIAM identifies companies that contribute negatively and positively to these themes. The negative contributors are excluded from investment in the actively managed fund; the positive contributors receive an upgrade in their ESG score, thereby increasing the likelihood of being selected for investment.

ACTIAM has a specific policy for green or climate bonds. This policy requires bonds to be issued according to the Green Bond Principles, as well as criteria for the use of proceeds, reporting and the achievability of the projects and targets. The policy includes a blacklist of activities that we do not want to finance through green/climate bonds. Social or environmental impact needs to be measured / there need to be credible indicators, such as CO2 reduction or avoided CO2. ACTIAM wants to prevent the locking in of money in less ambitious projects. As part of our energy transition policy, we use green bonds to stimulate renewable energy and energy efficiency. The impact is monitored each year. If the impact is not concrete enough or if we see possible improvements, we will start engagement with the issuer. Bonds that are labelled 'green' by the in-house ESG ream receive an upgrade in their ESG score.

11.5. Additional information [OPTIONAL]


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:

          We ask issuers to formulate disclosure targets (such as carbon reduction targets).
        

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

There are two different processes. For our thematic overlay (climate change, land, water, living, health), the ESG team researches the issuer and excludes or upgrades bonds issued by that party based on their negative or positive contribution to one of our themes.

For green bonds, the bond is analysed primarily at bond level (however, we take into account whether the issuer makes real efforts towards an energy transition and more sustainability to avoid green washing). The bond needs to meet the criteria of ACTIAM's green bond policy at the minimum. If this is not the case, the bond will not be registered as a green bond in ACTIAM's system, thereby decreasing the likelihood that this bond will be bought - if the bond is still bought, it will not be registered as a green bond and will not be included in ACTIAM's administration of green bonds.

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]

Part of our green bond policy is that issuers need to report at least annually. These requirements are different for the other thematic bonds, as they are excluded or upgraded based on the analysis of the issuer, not the bond.

We have had an independent audit conducted on the carbon footprint of our FI (and equities) investment funds early 2017 (over 2016 data).


(C) Implementation: Integration

FI 14. Integration overview

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

For the active funds that incorporate all three strategies, the following steps are taken:

First, a screening is conducted based on the ACTIAM Fundamental Investment Principles. Companies that are excluded from investment can be found on our website: http://www.actiam.nl/en/sustainability/exclusions.

Second, we allocate an "ESG score", which aggregates policy and conduct of several ESG indicators, a sector-based score and an analyst score, to all remaining companies in the universe. This is the score that any bond issued by that issuer will receive.

And third, we add a thematic overlay based on material themes, such as climate change, water, health and land. The worst performers per theme are excluded from investment in the active fund, for example companies that are too dependent on coal mining and therefore a negative contributor to climate change. Companies that are considered positive contributors, such as renewable energy producers, are positively selected by upgrading their ESG score. Engagements can be set up in case these companies deliver a sustainable core product but are lagging in their ESG score due to, for example, a relatively low level of disclosure.

Both the ESG team and the portfolio management team are responsible for this combination of strategies.

 

For the active funds that incorporate two strategies, screening and integration, only the first two above steps are taken.

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

SSA

For sovereigns, we have an adapted ESG score that is constructed of indicators relevant for sovereigns as opposed to companies. However, the process is the same. First a screening is conducted based on the ACTIAM Fundamental Investment Principles, which leads to the exclusion of sovereigns, and an ESG score is attributed to the remaining sovereigns.

Corporate (financial)

The process is the same as described in FI 14.1.

Corporate (non-financial)

The process is the same as described in FI 14.1.

Securitised

The process is the same as described in FI 14.1.

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
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
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
SSA

Environmental

Social

Governance

Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

Securitised

Environmental

Social

Governance

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

SSA

The ESG information is systematically incorporated into our systems (applicable to all portfolios), so the investment manager has an ESG score for all the issuers that he/she can invest in. These scores are reviewed and updated on a regular basis. The investment manager is required to take the ESG information into account, as the ESG score of his/her portfolio needs to be higher than the ESG score of the benchmark at the minimum (dependent on the specifics of the mandate).

Corporate (financial)

The ESG information is systematically incorporated to our systems (applicable to all portfolios), so the investment manager has an ESG score for all the issuers that he/she can invest in. These scores are reviewed and updated on a regular basis. The investment manager is required to take the ESG information into account, as the ESG score of his/her portfolio needs to be higher than the ESG score of the benchmark at the minimum (dependent on the specifics of the mandate).

Corporate (non-financial)

The ESG information is systematically incorporated to our systems (applicable to all portfolios), so the investment manager has an ESG score for all the issuers that he/she can invest in. These scores are reviewed and updated on a regular basis. The investment manager is required to take the ESG information into account, as the ESG score of his/her portfolio needs to be higher than the ESG score of the benchmark at the minimum (dependent on the specifics of the mandate).

Securitised

The ESG information is systematically incorporated to our systems (applicable to all portfolios), so the investment manager has an ESG score for all the issuers that he/she can invest in. These scores are reviewed and updated on a regular basis. The investment manager is required to take the ESG information into account, as the ESG score of his/her portfolio needs to be higher than the ESG score of the benchmark at the minimum (dependent on the specifics of the mandate).

16.3. Additional information.[OPTIONAL]

The ESG scores are available for all portfolios, however the implementation of a minimum score for the portfolio is not currently applicable to all portfolios


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