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Central Finance Board of the Methodist Church / Epworth Investment Management

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.

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

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

We incorporate our overarching ethical approach (outlined in strategy & governance) into all of our investment universe.  Within the fixed income part of our portfolios, this mainly takes the form of negative screening, both for corporates and for SSAs, we also have a preference for holding green bonds (where available), and integrate analysis of the ESG aspects of a company into our investment analysis.  An example of this is that in the past this has led to a preference for holding IBRD bonds.  We also engage with companies in which we hold bonds.

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

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

specify description

          We periodically review our external ESG providers.
        

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

03.3. Additional information. [Optional]


(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 apply the same negative screens to all of our fixed income investments that we do to all of our investments.  The issue-specific policies are in the public domain and on our website.  With respect to SSAs and government securities we consider certain aspects of the issuing country, in particular human rights, corruption, involvement in conflict & development.

We use positive screen to favour green bonds and similar investments in companies that enable sustainable growth by approapriately managing all stakeholders.

 

04.3. Additional information. [Optional]


FI 05. Negative screening - overview and rationale

05.1. Indicate why you conduct negative screening.

SSA

SSA

Corporate (financial)

Corporate (fin)

Corporate (non-financial)

Corporate (non-fin)

Securitised

Securitised

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

We screen for a variety of issues (all publicly available on our website). These include: alcohol, armaments, gambling, pornography, tobacco, high interest lending, tar sands, thermal coal, oil exporation.

05.3. Additional information. [Optional]


FI 06. Examples of ESG factors in screening process (Private)


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?

other description

          The full list of issuers are reviewed in the monthly portfolio review meeting, which is attended by the CIO
        
Positive/best-in-class screening

other description

          The full list of issuers are reviewed in the monthly portfolio review meeting, which is attended by the CIO
        

07.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 08. Thematic investing - overview (Private)


FI 09. Thematic investing - themed bond processes

09.1. Indicate whether you encourage transparency and disclosure relating to the issuance of themed bonds as per the Green Bonds Principles, Social Bond Principles, or Sustainability Bond Guidelines..

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

When green/ESG bonds are issued we expect the prospectus to outline that proceeds would only be used for eligible projects, the process by which these are determined and the processes by which they are audited.  In the event of issuers not adhering to these matters, we would not expect to continue holding the bonds.

09.3. Additional information. [Optional]


FI 10. Thematic investing - assessing impact

10.1. Indicate how you assess the environmental or social impact of your thematic investments

10.2. Additional information. [Optional]


(C) Implementation: Integration

FI 11. Integration overview

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

There is a dedicated ESG section in our investment reports, with a section each for environment, social and governance factors. There are common criteria that are addressed, in addition to high impact issues specific to the sector e.g carbon emissions for electricity generation companies; water management for beverage companies etc.
 

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

SSA

When we invest in SSAs we look at the business focus of the institution in the same manner as for a company.  Many SSAs are lending institutions (eg EIB, IBRD) and in these situations we look at the lending policies and the types of projects to which funds are disbursed - these can be both positive (e.g. lending for development) and negative (e.g. lending for coal-fired power stations).  Where SSAs are the responsibility of only one government, we also consider country-specific factors such as human rights and corruption.

Corporate (financial)

We consider the lending policies and practices of the financial institutions to which we lend.  In recent years this has focussed on concerns around bank lending to projects that would involve high carbon emissions, though in the past it also involved concerns around bank lending to projects in specific jurisdictions (e.g. Apartheid-era South Africa).

Corporate (non-financial)

With non-financial companies, the ESG integration into financial analysis, is very similar to that in equities, with an incorporation of ESG metrics into our financial analysis.  This focusses on particular metrics where relevant to the sector concerned.  

Securitised

When we consider securitised bonds, we look at both the activities of the issuer and the underlying security for the bonds when integrating ESG factors into our analysis.  We apply our ethical policies to both of these to see if there are any ESG factors which would influence our investment decision.

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
SSA

Environmental

Social

Governance

Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

Securitised

Environmental

Social

Governance

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

SSA

When we research an SSA issuer, we look into ESG factors as part of the investment process.  We focus on those factors and metrics which are most relevant to the issuer in question.  We focus on both the practices of the instituion in question and also the projects to which the institution lends (where relevant).

Corporate (financial)

When we research a financial issuer, we look into ESG factors as part of the investment process.  We focus on those factors and metrics which are most relevant to the issuer in question.  We focus on both the practices of the instituion in question and also the projects to which the institution lends (where relevant).  We have a particular concern around high interest lending, and will not lend to issuers who engage in this usurious practice.

Corporate (non-financial)

When we research a non-financial issuer, we look into ESG factors as part of the investment process.  We focus on those factors and metrics which are most relevant to the issuer in question.  

Securitised

When we research a securitsed issue, we look into ESG factors as part of the investment process.  We focus on those factors and metrics which are most relevant to the issuer in question.  We focus on both the practices of the issuer, and the assets which form the security of the issue as part of our analysis.

13.3. Additional information.[OPTIONAL]


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