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RBC Global Asset Management

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.

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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