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RBC Global Asset Management

PRI reporting framework 2017

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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
1.0 Thematic alone
90.3 Integration alone
8.7 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
1.3 Thematic alone
83.7 Integration alone
15.0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
1.0 Thematic alone
67.7 Integration alone
31.3 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 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 believe that ESG factors can impact the financial performance of the corporate and sovereign issuers in which we invest. We integrate ESG factors within our investment processes with the aim of enhancing our pricing and management of risk. BlueBay is particularly advanced in its fixed income ESG integration and we are working on further developing or improving the processes of our other fixed income teams to fully integrate ESG factors.

A combination of screening and integration is applied to our designated socially responsible strategies. These strategies have been specifically designed to screen out companies that manufacture products and/or provide services that socially responsibe investors may wish to avoid, or have poor ESG practices . In addition to a negative screen, integration is used to assess the remaining companies to ensure that relevant ESG factors are appropriately addressed.

Thematic alone is used in our Access Capital Community Investment strategy, an investment solution offered through our U.S. operations to U.S. clients. Access Capital aids underserved communities while seeking to earn a market rate of return through the support of low and moderate income home buyers, affordable rental housing, small business administration loans and economic development projects.

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)
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.

We have engaged a number of external research firms to provide specialized ESG research which we use in conjunction with our own internal analysis. This research provides us with information on ESG risks and opportunities relevant to specific issuers, industries, and countries and also provides us with broad-based thematic research relevant to general ESG themes.

BlueBay uses combination of internal and external resources for ESG-related data, which comes from a range of stakeholders.

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:

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

          BlueBays ESG function actively participates in cross-desk sector analyst forums to share insights and views, and have ad-hoc interaction with analysts/portfolio managers.
        

06.3. Additional information. [Optional]

Our investment teams are at varying stages in developing their ESG integration processes. All of our investment teams have access to comprehensive ESG research and are incorporating ESG factors into their investment decision making. Further, we integrate ESG scores into our standard and proprietary trade management software/applications. BlueBay has a framework to assess ESG investment risk and incorporates ESG information as a standard item in issuer investment related documentations in its private debt business.


(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)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

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

As described in detail in our response to question 8, our designated socially responsible strategies, which include fixed income strategies, have negative screens for certain industries. Most of the screening criteria are based on a threshold of involvement defined in terms of percentage of annual revenue.

Qualitative screening criteria are also applied to these strategies. The application of qualitative criteria involves evaluating each company's overall performance in each issue area and balancing strengths and concerns. Our qualitative screening criteria include: community, corporate governance, employee relations, environment, human rights and product/business practices. In the specific areas of occupational health and safety and environmental performance, we apply the qualitative screening criteria using a best-of-sector approach, where each company's record is evaluated relative its industry counterparts. The standards for performance are industry best practices.

We also apply custom ESG screens for a small number of segregated fixed income institutional accounts for both RBC GAM and BlueBay.

For all portfolios where we control the investment policy, we will not knowingly invest in companies whose business activities would contravene the prohibitions contained in the Anti-personnel Landmines Convention or the Convention on Cluster Munitions, or for any international sanctions we are required to comply with.

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)

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

Our designated socially responsible strategies have negative screens for alcohol, gaming, military weapons, pornographic materials, nuclear power and tobacco products. Most of the screening criteria are based on a threshold of involvement that is defined in terms of percentage of annual revenues.

Negative screens may also be applied for certain segregated accounts where investors have specified particular screening criteria.

Where there are full economic sanctions that prohibit any financial dealings with a foreign state, we will not invest in securities that fall within the sanctions. Where sanctions have been imposed against foreign countries that do not prohibit financial dealings but restrict other activities, we will review the restrictions in the course of the investment process to understand the sanctions and their implications, identify and assess any risk and consider whether the investment would still be in the best interests of our clients.

When we control the investment policy for a portfolio, we will not knowingly invest in companies whose business activities would contravene the Anti-Personnel Landmines Convention or the Convention on Cluster Munitions. These exclusions apply to corporate credit holdings, but do not apply to derivatives or other index exposures where our exposure is indirect and outside of our control.

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

Our designated socially responsible strategies have negative screens for alcohol, gaming, military weapons, pornographic materials, nuclear power and tobacco products. Most of the screening criteria are based on a threshold of involvement that is defined in terms of percentage of annual revenues. Additionally, we apply negative screening regarding controversies across environmental, social and governance areas.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Where there are full economic sanctions that prohibit any financial dealings with a foreign state, we will not invest in securities that fall within the sanctions. Where sanctions have been imposed against foreign countries that do not prohibit financial dealings but restrict other activities, we will review the restrictions in the course of the investment process to understand the sanctions and their implications, identify and assess any risk and consider whether the investment would still be in the best interests of our clients.

When we control the investment policy for a portfolio, we will not knowingly invest in companies whose business activities would contravene the Anti-Personnel Landmines Convention or the Convention on Cluster Munitions. These exclusions apply to corporate credit holdings, but do not apply to derivatives or other index exposures where our exposure is indirect and outside of our control.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Qualitative screening criteria are applied to our designated socially responsible strategies in areas such as community, employee relations and environment. The application of qualitative criteria involves evaluating each company's overall performance in each issue area and balancing strengths and concerns. Our qualitative screening criteria include: community, corporate governance, employee relations, environment, human rights and product/business practices. In the specific areas of occupational health and safety and environmental performance, we apply the qualitative screening criteria using a best-of-sector approach, where each company's record is evaluated relative to its industry counterparts. The standards for performance are industry best practices.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

We also apply customised ESG screens for a small number of institutional clients.  These screens are determined by the client and are mostly based on alcohol, tobacco, and human rights issues.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

One of the BlueBay retail strategies has additional restrictions which are based on the Norwegian Government Pension Fund Global/Norges Bank Investment Management exclusions list. The SRI guidelines on which this list is based on includes product-based exclusions (which include coal/coal-based energy, nuclear weapons, tobacco) as well as conduct based exclusions (e.g. human rights, environmental damage, gross corruption, and other serious violations of fundamental ethical norms). The conduct-based exclusions could potentially apply to any corporate issuer irrespective of their sector.

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?

other description

          Data used for the screening criteria is updated monthly.
        
Positive/best-in-class screening

other description

          Data used for the screening criteria is updated monthly.
        
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.

11.5. Additional information [OPTIONAL]

We provide impact investing through our Access Capital Community Investment strategy, an investment solution offered through our U.S. operations to U.S. clients. Access Capital aids underserved communities while seeking to earn a market rate of return through the support of low and moderate income home buyers, affordable rental housing units, small business administration loans and economic development projects.


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:

          Signatory to the Statement of Investor Expectations for Green Bonds.
        

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

Although our exposure to green bonds is limited to investments made by BlueBay, we are a signatory to the Statement of Investor Expectations for 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

          Every investment must meet specific social impact criteria (detailed below)
        

13.2. Additional information. [Optional]

The following social impact criteria are required to be met for each investment (as applicable):

  • the investment must serve a low to moderate income family or community;
  • home owners who earn 80% or less of the area-median income or multi-family rental housing that is 51% or more subsidized;
  • nursing homes that serve a high percentage of medicare patients;
  • small business loans in low to moderate income census tracks; or
  • taxable municipal bonds that serve low to moderate income communities or populations.

(C) Implementation: Integration

FI 14. Integration overview

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

In general, for fixed income, we consider ESG factors when they have the potential to impact the value of our investment. We examine ESG factors at both the issuer and sector level. We seek to understand each issuer individually and through the lens of local norms and the laws and regulations of the market in which it operates; however, we believe that there are some basic ESG principles that are applicable across all markets. Those include the need for a qualified and effective board that is accountable to shareholders, robust accounting and risk management systems, appropriate policies to address environmental and social risks and opportunities to the business, and policies and controls designed to ensure full compliance with all applicable laws and regulations. Principles applicable to sovereign issuers include appropriate anti-corruption measures and the protection of private property rights.

Our investment teams are at varying stages in integrating ESG into their fixed income investment analysis. All of our teams have access to robust ESG research that is used in the investment decision making process. For example, some teams are currently working on incorporating their ESG analysis more formally into their credit analysis, while others are in the process of building monitoring sheets that link to a third-party ESG research to flag ESG-related issues. Our London sovereign debt team actively compares ESG research against its own analysis of ESG risks relevant to each sovereign issuer. BlueBay's ESG integration includes considering ESG risks at the issuer, sector, portfolio, and group levels.

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

SSA

We believe that meaningful ESG integration must be driven by our investment teams, so that they can determine how ESG-related information can best be incorporated into their investment process in a way that adds value for our clients.  We believe that this will lead to thoughtful, innovative approaches.  For example, our sovereign debt team was already integrating social and governance factors into the qualitative screen of their Global Fundamentals Model which they use to help assess the investment merits of sovereign debt, but looked for ways in which environmental risk could be measured. After studying the issue, the team identified a series of measureable environmental indicators in the areas of ‘climate change’ and ‘natural resource’ risks which they determined may impact creditworthiness, which they then built into their Global Fundamentals Model.

Our investment teams use specialized ESG country research that focuses on corruption risk, private property rights, geo-political and social factors as these are the most relevant for sovereign bonds. Engagement occurs less frequently for SSA fixed income, although it may still be done in certain circumstances (particularly by BlueBay).  In regards to environmental factors, BlueBay will consider environmental risks, especially those that pose immediate risks to economies that are materially reliant on industries that are most exposed to said risks.

Corporate (financial)

Our investment teams focus on governance factors, which include assessing a board's effectiveness and independence, management's risk management systems and policies, and any impact of ESG factors on the credit cycle. Engagement with management on ESG issues, particularly governance, occurs on a regular basis.

Corporate (non-financial)

ESG integration is substantially similar as for Corporate (financial) except there is typically less focus on the credit cycle.  Further, environmental and social issues will largely depend on factors such as business activities and industry as these risks will differ across issuers.

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)
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

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

SSA

Our investment teams have access to robust research on ESG factors. Our investment teams use different approaches to integrate this information into the investment decision making, for example, some teams may use the information for portfolio weightings or to limit investments in less favourable regions. Governance factors (such as corruption) are typically the most relevant for sovereign bonds. ESG factors may be discussed at team and/or risk or other committee meetings.

BlueBay has incorporated the scores of ESG providers into its investment risk IT systems and has organized webinars during the year with some providers to discuss ESG concerns in vulnerable countries.

Corporate (financial)

Our approach to reviewing ESG factors for corporate issuers (financial) is similar to that for sovereign issuers, with a particular focus on governance. In addition, ESG factors are reviewed during engagements with issuers more frequently than for sovereign debt.

Through its cross team sector analyst forum initiative, BlueBay’s ESG team shares ESG insights on a regular basis which has initiated efforts to develop sector ESG briefing documents.

Corporate (non-financial)

Our approach to reviewing ESG factors for corporate issuers (non-financial) is similar to that for corporate (financial) except less focus is placed on how the ESG factors relate to the credit cycle.

16.3. Additional information.[OPTIONAL]


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