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Uniting Financial Services

PRI reporting framework 2018

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(C) Implementation: Integration

FI 11. Integration overview

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

Ethical/ESG integration is a part of our approach to portfolio construction. Together with financial analysis this give us a clear understanding of the key issues that need to be taken into account when making an informed investment decision. Therefore it is a combination of the analysis of a specific issuer using the credit ratings analysis of an organisation in addition to how we assess them using our Ethical/ESG scoring of each of the issuers.

Understanding the financial statements in any investment is important however there are other aspects that need to be analysed when assessing the profitability of an organisation. There are many Ethical/ESG issues that an investor needs to be aware of as there is the potential for these to have both a negative and positive impact of the performance of an organisation. Therefore governance is a good starting point and understanding if an organisation has the appropriate governance structures in place.

Each organisations Ethical/ESG score has a component of governance, environmental and social as a percentage weight in its scoring. Therefore a good governance score tends to assist in the environmental and social scores, which are all included to give us an Ethical/ESG score for each issuer. Poor governance scoring or overall poor Ethical/ESG score can be an indicator that there are some issues within the organisation and can be a flag for concern and an indicator for deeper investigation. On the flip side to this an advanced or high Ethical/ESG score can be a good leading indicator that this organisation is and continues to manage the organisation in a positive manner and its actions will assist in the profitability of the organisation.

Therefore it is combination of the issuers credit rating (financial statement analysis) and ESG score in assessing the viability of an organisation for investment. 

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

Corporate (financial)

An example is the assessment of the four majors within the Australian market. Whilst assessing each of these issuers credit ratings reports we assess the Ethical/ESG score for each. CBA is a good example. This bank is the lowest of the four major banks and because of this score it has led us to question our weighting to this bank within the portfolio.

Corporate (non-financial)

An example here is our assessment of the major retail grocery providers in the Australian market that issue debt. One particular organisation has had some questionable supply chain issues, gaming issues with patrons and does not score well from an Ethical/ESG perspective. It is this assessment along with the credit rating assessment that we formulated a decision not to invest.

Securitised

An example here is a recent securitised deal that was associated with funding solar financing, which we were encouraged to see. However the organisation that was involved in the finance lease also had exposure to pay day lending which is a material part of their revenue. We therefore did not invest in this securitised deal as it was directly against the Ethical/ESG Investment Policy of the Church.

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
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)

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.

Corporate (financial)

All holdings within the portfolio have an Ethical/ESG score which is used when assessing the investment and reviewed regularly through out the year.

Corporate (non-financial)

All holdings within the portfolio have an Ethical/ESG score which is used when assessing the investment and reviewed regularly through out the year.

Securitised

All holdings within the portfolio have an Ethical/ESG score which is used when assessing the investment and reviewed regularly through out the year.

13.3. Additional information.[OPTIONAL]


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