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Pensionfund Metalektro (PME)

PRI reporting framework 2017

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(C) Implementation: Integration

FI 14. Integration overview

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

SSA (EMD): All countries we invest in are analyzed bottom-up. We take into account Environmental (for example the effect of Climate Change on the country), Social (for example poverty indicators, eduction, healthcare, inequality) and Governance (for example corruption, rule of law, government effectiveness etc). In order to analyze the countries we use different data sources as well as visit the country in order to build a complete picture. We dedicate a specific part of our country report to ESG analysis. Concerns/opportunities on ESG can result in an underweight, neutral or overweight recommendation. Last year we had an UW on Mozambique on concerns about governance, Mozambique decided to default on their debt. Databases we use take into account data that covers E, S and/or G, like United Nations Human Development Index, World Bank Worldwide Governance Index, Heritage Index of Economic Freedom, World Bank Ease of Doing Business Index, World Bank Dependency Ratio, MSCI environmental data.

Within Corporates (Fin and non-Fins), we fully integrate ESG in our bottom-up credit analysis (100% of our investable universe) as these can translate into higher credit risk by weakening a company's business profile and/or financial profile. Each sector analyst assesses the key ESG risk which are separately reported in the credit analysis and weighed in the investment recommendation (UW, Neutral or OW). Apart from using external research providers, company data, analysts consult the internal Responsible Investment & Governance team if more information is required regarding companies we actively engage with, with regard to specific themes (Climate, Tax principles, Social eg) or to flag our worries regarding a specific company.

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

SSA

All countries we invest in are analyzed bottom-up. We take into account Environmental (for example the effect of Climate Change on the country), Social (for example poverty indicators, eduction, healthcare, inequality) and Governance (for example corruption, rule of law, government effectiveness etc). In order to analyze the countries we use different data sources as well as visit the country in order to build a complete picture. We dedicate a specific part of our country report to ESG analysis. Concerns/opportunities on ESG can result in an underweight, neutral or overweight recommendation. Last year we had an UW on Mozambique on concerns about governance, Mozambique decided to default on their debt. Databases we use take into account data that covers E, S and/or G, like United Nations Human Development Index, World Bank Worldwide Governance Index, Heritage Index of Economic Freedom, World Bank Ease of Doing Business Index, World Bank Dependency Ratio, MSCI environmental data.

Corporate (non-financial)

In Corporates, the weight/importance of certain ESG factors may vary by sector and/or company depending on our risk assessment on the company's credit quality. One sector where ESG risks are much more explicit (and could potentially be a risk for the existence of the company) is the utilities sector. Therefore the weight/importance of ESG factors should be much higher versus various other sectors. We take the ESG factors/weights and scores from MSCI as a starting point, but prioritize, add or exclude ESG factors and/or scores. Examples of Environmental issues comprise carbon intensity (total value chain approach, thus including suppliers as well), Water & Energy efficiency, Recycling, Renewable energy use (utilities, , responsible sourcing (palm oil, agriculture); Examples of Social factors include privacy & Data protection, Product Safety and accessibility, Responsible marketing, Nutritional benefits, Process/Production Safety (Production related sectors like Healthcare, Food & Beverage, Industrials, Chemicals, Oil&Gas. It comprises the occurance of Injuries, risk of contamination, HACCP certificate, recalls). Labor standards can be particularly an issue in Retail, Personal & Household goods; Examples of Governance factors (all sectors) comprise data disclosure and transparency, shareholder structure, Controversies/Fraud, consistency with regard to strategy.

14.3. Additional information [OPTIONAL]

Above we mentioned that the weight/importance of certain ESG factors may vary by sector and/or company depending on our risk assessment on the company's credit quality. One sector where ESG risks are much more explicit (and could potentially be a risk for the existence of the company) is the utilities sector. Therefore the weight/importance of ESG factors should be much higher versus various other sectors.


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 (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]

Corporates and SSA: ESG factors are explicitly discussed and assessed in our bottom-up fundamental analysis. If we see more risk on a longer horizon, we express this by limiting exposure to shorter duration. Furthermore, if we become less comfortable about certain ESG risks, we actively engage with our RIG team and/or the company involved. See 14.2 for further details. ESG, climate risk and Green Bonds are recurring themes in our team meetings as well.


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 (non-financial)

Environmental

Social

Governance

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

SSA

SSA: The ESG opinion on E, S and G from MSCI and Governance Indicators will determine our investable universe. Within the investable universe further ESG analysis is systematically used as input for investment decisions.

Corporate (non-financial)

Corporates: E, S and G are standard elements of our analysis of corporates and is updated regularly, we use it as input into our investment decision. When material ESG issues arise, a more in depth view is developed.

16.3. Additional information.[OPTIONAL]


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