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Munich Re

PRI reporting framework 2018

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income

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.

The screening approach is a well-established process and is applied to all fixed income assets. All internal systems are able to take the screening approach into account and provide maximum transparency. Thematic themes are specific to one topic (e.g. Green bonds) allocating capital in sustainable initiatives with a strong ESG character. External data is being used as a starting point for ESG integration into our investment research.

Before deciding about a specific bond investment all relevant strategies are applied. Fulfilling our thematic requirements might not be sufficient if the screening strategy leads to different results. Hence we want to avoid that investment themes (e.g. Green bonds) give a competitive edge to issuers that want cheap access to the capital market.

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:

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

03.3. Additional information. [Optional]

The implementation of the PRI Principles and integration of ESG issues into the investment process is one of the major objectives of MEAG, the global fund manager of Munich Re. Given the large number of portfolios, there is a high awareness of ESG criteria being applied.

Within Fixed Income there is an established investment process which ensures that all rating information is updated properly and fed into the front office system. Various departments are committed fo meet these requirements (e.g. Portfolio Management, Risk Controlling, IT). A summary of all investment recommendations with regard to issuers (SSA/Corporate/Securitised) including their corresponding sustainability rating - the so called master list - ensures a maximum degree of transparency and gives all professionals (around 55 investment managers in Fixed Income) access to the same information pool. We cross-check third party ratings with information we directly receive from companies (one-on-one meetings, engagement).


(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

Strict ban on buying bonds of companies that are on an internal "banned weapons" list. The exclusion criteria include companies that are suspected to deal with banned weapons or generate more than 5% of revenues with the production, trading or transport of banned weapons. The policy is applied to all investment funds.

Screening of sovereigns through MSCI rating: countries classified as "CCC" have to be avoided and pop up on an internal prohibition list. If a country is downgraded to "CCC" internal limits are set back to zero. This process is incorporated into MEAG front office systems, where a "pre-order limit check" runs before each transaction.

04.3. Additional information. [Optional]

In general, Fixed Income uses an ESG integration approach, meaning that credit analysts and portfolio managers incorporate ESG-criteria into the investment decision. In the case two investments have the same risk/return profile we prefer the more sustainable issuer.


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.

Strict ban on buying bonds of companies that are on an internal "banned weapons" list. The exclusion criteria include companies that are suspected to deal with banned weapons or generate more than 5% of revenues with the production, trading or transport of banned weapons.

Screening of sovereigns through MSCI rating: All countries classified as "CCC" are on an internal prohibition list.

 

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?
Positive/best-in-class screening

07.2. Additional information. [Optional]

Negative/Exclusionary screening: For all investment decisions the investment manager has to consider the investment guidelines in advance. This process is supported by an automated pre-order limit check. Exclusionary ESG criteria are part of the pre-check application. In case of a limit breach the portfolio manager has to repatriate the transaction and write an internal note/statement. In order to avoid similar breaches in the future, the whole process is under constant review and adjusted where necessary.

Positive/Best-in-class screening: The portfolio manager has to ensure that the best-in class criteria are taken into account.

 


(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.

If proceeds are not used as stated in the documents, we directly contact the issuer to clarify the situation before taking any further action.

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

          We make sure that issuers fulfill the requirements outlined in the documents (e.g. contact IR)
        

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 team of dedicated credit researchers at MEAG in Munich and New York. The credit researchers are obliged to conduct a detailed fundamental credit analysis of the issuer. This involves the evaluation of all available information. As part of this credit analysis, ESG criteria have to be considered. All information available from the MSCI ESG-reports are embedded into the research process and the MSCI ESG rating is part of the final investment memorandum. In addition, the fundamental credit score of the issuer takes into account  ESG risks and opportunities. The investment memorandum has to include an evaluation of ESG criteria being considered and how they have impacted the investment recommendation and credit analysis. Investment summaries are circulated to all fixed income portfolio managers.

MEAG also invests directly in sustainable projects via Infrastructure Debt. In order to select the right projects we integrate the relevant ESG criteria into the analysis/due diligence. The criteria applied depends on the specific project.

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

SSA

In addition to the process described above a minimum ESG-rating applies for sovereigns.

Corporate (financial)

see above

Corporate (non-financial)

see above

Securitised

see above

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]

ESG criteria are integrated at various stages of the investment process. There is a close collaboration with MEAG's stakeholder Munich Re and ERGO with regard to ESG topics. MEAG regularly informs its stakeholders about the progress and about the increased awareness of ESG issues. As its stakeholders define the responsible investment guideline, strict requirements have to be met.

ESG criteria are also applied for funds managed for third parties (e.g. for trusts, churches).

 


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

For the classification of sovereigns we use the "ESG country-rating" provided by MSCI. The analysis, which helps to assess country's vulnerability to key ESG risks, includes the screening of controversial practices such as use of child labor or regulatory sanctions. In addition the MSG ESG Manager provides insight into a country's political and social stability as well as its engagement in international treaties and conventions.

Corporate (financial)

We use MSCI as an external ESG-research provider. For corporates we have access to all  detailed rating reports. Beyond that we use information we directly obtain from companies and publicly available information about E,S and G issues. It is the task of the investment analysis to evaluate the impact of each criterion to assess the risk profile of the investment.

Corporate (non-financial)

Please see above (Corporate financial)

Securitised

Please see above (Corporate financial)

13.3. Additional information.[OPTIONAL]


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