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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income
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.
We periodically review our external ESG providers.
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.
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.
The full list of issuers are reviewed in the monthly portfolio review meeting, which is attended by the CIO
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.
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.
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.
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).
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.
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.
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).
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.
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.
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.