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Dana Investment Advisors

PRI reporting framework 2018

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ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

01.1. 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
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
Securitised
0 Screening alone
0 Thematic alone
100 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied

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

Corporate Bond Strategies include both financials and nonfinancials. ESG integration is used for risk reduction and alpha generation (i.e. potential credit upgrades). Fully integrated ESG Strategies have outperformed benchmarks since inception. Social screens (exclusions) are often client driven values that we incorporate in our ESG Strategies. Many of our clients are mission-oriented and embedding these social values is critical. For the securitized component of our short duration product, we allocate to Small Business Administration (SBA) loan pools, currently 15% of that Strategy. These loans often have a social thematic component, serving underbanked, low income or minority owned businesses.

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research

02.1. 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

02.2. 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  

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

We utilize a variety of third party vendors for ESG information, including ISS, MSCI, Trucost, Bloomberg, Sustainalytics, Center for Political Accountability, CDP, and CSRHub. From most of our vendors, we use selected raw data and scores within our proprietary quantitative ESG models. Our FI Strategies are customized for a variety of clients. We have clients that exclude U.S. Treasuries from their portfolios due to defense funding. In these cases the Corporate Bond and SBA allocations are higher.

02.4. Additional information. [Optional]


FI 03. Processes to ensure analysis is robust

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

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

03.3. Additional information. [Optional]

Portfolio managers meet regulary at Fixed Income Committee meetings and discuss any material changes and potential trades and rationales.


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. 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

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

We utilize a proprietary quantitative model that draws on over 120 E, S and G factors from third party vendors. Environmental factors include a variety of climate change impacts, metrics, and targets (i.e. direct and indirect GHG emissions, regulatory actions or fines, disclosures and policies. Examples of Social criteria include various measures of workforce diversity, human rights policies, product and workplace safety, labor rights and policies, animal testing. Governance issues include auditing & accounting policies, board composition and independence metrics, CEO compensation (with absolute limits, not only relative). Negative screens include Adult Entertainment, Alcohol Manufacturing with revenue bands for inputs and wholesaling, Gambling, Military & Weapons (nuclear, landmines, cluster munitions, firearms or ammunition manufacturing; revenue bands for conventional weapons), Tobacco (revenue bands for tobacco supplier). Our Corporate Fixed Income Strategies exclude fossil fuel companies.

 

 

 

04.3. Additional information. [Optional]


FI 05. Negative screening - overview and rationale

05.1. Indicate why you conduct negative screening.

Corporate (financial)

Corporate (fin)

Corporate (non-financial)

Corporate (non-fin)

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

We provide social screening (exclusions) to help clients align their mission with their investments. At times there is a bottom line component as well. For example, we exclude gun manufacturers and retail chains that distribute guns. This issue has garnered increasing reputational risk and has potential revenue implications for companies. Limiting or excluding fossil fuel exposure also has a bottom line aspect as we transition to a low carbon economy.

We also provide Catholic screening that incorporates United States Conference of Catholic Bishops (USCCB) guidelines.

05.3. Additional information. [Optional]


FI 06. Examples of ESG factors in screening process

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

06.2. Additional information.


FI 07. Screening - ensuring criteria are met

07.1. 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

07.2. Additional information. [Optional]

Our data is updating at least quarterly (and often more frequently). Portfolio Managers are responsible for checking the data and for compliance along client and strategy guidelines. Our Trading Department enters exclusions into our Compliance Module which flags "restricted" securities from being purchased.


(C) Implementation: Integration

FI 11. Integration overview

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

ESG integration helps to evaluate future cash flows and credit worthiness. As a high credit asset management firm, our clients value our reliable, conservative approach. Deeper ESG analysis is another tool to uncover risks not yet built into credit ratings, such as environmental accidents or mismanagement, disrupted business models  (i.e. auto companies as shift to EVs), exposure to natural disasters and changing regulatory environment. Labor relations, security issues, workforce diversity, incentive structures are other indicators of best-in-class practices or failures. We seek to avoid the price volatility as a result of potential headline risks. We use ESG analysis to hone in on companies distinguishing themselves in a wide array of areas and also as a way to evaluate the potential for these securities to continue to excel or falter. Green Bonds are another area where we can drive our Strategies' positioning toward a low carbon economy. We have increased our weight to these issues as the space has grown in the last few years. 

 

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

Corporate (financial)

ESG integration helps to evaluate future cash flows and credit worthiness. As a high credit asset management firm, our clients value our reliable, conservative approach. Insurance companies and bank holdings present additional opportunities to distinguish issues with respect to geographical exposure and industry exposure via their underwriting, loan portfolios or investment portfolios. This is part of our security selection and risk management processes. More Green Bonds are being issued by financials, such as banks and REITS, so we are availing ourselves of opportunities for clients in this space.

 

 

Corporate (non-financial)

ESG integration helps to evaluate future cash flows and credit worthiness. As a high credit asset management firm, our clients value our reliable, conservative approach. We use ESG to hone in on companies distinguishing themselves in a wide array of areas and also as a way to evaluate the potential for these securities to continue to excel. Avoiding fossil fuel producers and increasing exposure to industries deploying more renewables, are one forward-looking example.

Securitised

Our Limited Volatility Strategy holds high quality, short duration instruments including securitized loans. It has never delivered a negative returning calendar year, thus our managers are focused on governance and creditworthiness. Allocating more toward SBAs allows us to provide a social component while preserving a AAA credit.

11.3. Additional information [OPTIONAL]


FI 12. Integration - ESG information in investment processes

12.1. 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

12.2. Additional information [OPTIONAL]


FI 13. Integration - E,S and G issues reviewed

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

Environment Social Governance
Corporate (financial)
Corporate (non-financial)
Securitised

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

Corporate (financial)

Portfolio Managers review models frequently and formally as a team. Any significant changes, issues, advocacy efforts are discussed as well as recent/potential trades and their rationales. We have an online internal research tool and shared spreadsheets to manage the information and assure it is available to decision makers.

Corporate (non-financial)

Portfolio Managers review models frequently and formally as a team. Any significant changes, issues, advocacy efforts are discussed as well as recent/potential trades and their rationales. We have an online internal research tool and shared spreadsheets to manage the information and assure it is available to decision makers.

Securitised

Portfolio Managers review models frequently and formally as a team. Any significant changes, issues, advocacy efforts are discussed as well as recent/potential trades and their rationales. We have an online internal research tool and shared spreadsheets to manage the information and assure it is available to decision makers.

13.3. Additional information.[OPTIONAL]

Portfolio Managers review models frequently and formally as a team. Any significant changes, issues, advocacy efforts are discussed as well as recent/potential trades and their rationales. We have an online internal research tool and shared spreadsheets to manage the information and assure it is available to decision makers.


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