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APG Asset Management

PRI reporting framework 2018

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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.

We take ESG issues into account in our investment processes by:

  • Making ESG research and analysis available systematically through various ESG tools.
  • Including the key ESG ratings compared to peers in the investment case.
  • Having portfolio managers and analysts assess the ESG risks and determine how these may affect companies' performance and/or risk profiles and required premiums.
  • Having material ESG issues discussed at credit investment committees.

In addition to this we also screen entire portfolios against compliance with the UN Global Compact principles, apply an exclusion policy companies involved in the manufacture of controversial weapons, and engage with companies.

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

SSA

We fully integrate ESG within SSA. Although the focus for sovereigns in mostly exclusion based, we do integrate ESG factors into our decision making. For government related and agencies we integrate ESG factors of the issuer, and actively engage with issuers on issuance of green bonds, In our EMD portfolio we integrate various ESG factors into our investment decisions (including rule of law and corruption) that enables us to better assess risks in a country.

Corporate (non-financial)

Within corporates ESG is integrated through our Inclusion Policy. We also actively invest in Green Bonds and consider the available ESG information when selecting certain investments and carry out joint engagements with equity where we both have a position in a company. The exclusion policy is also applicable for fixed income investments.

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
Corporate (non-financial)

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

SSA

The emerging market debt team has deepened ESG integration in its investment process over the past years. The team uses the ESG Country risk tool that APG has developed together with research providers. The emerging market debt team has done an analysis on the data of the ESG Country Risk tool to assess the relationship between the risk premium of a country and the ESG scoring. The team has selected indicators deemed relevant for this relationship as these factors drive growth potential or are an indicator of social (in)stability. These selected ESG indicators are integrated in the in-house build score card for assessing risks and opportunities of the investments. Most of the indicators that the team adopted are governance and social indicators such as rule of law, government effectiveness, corruption perception, equality, education and the standard of living. Next to the ESG integration in the investment process through the Scorecard model, the team implements the Sovereign Bonds Exclusion list. Going forward, EMD will deepen the responsible profile of our clients portfolio, and search for potential new investment opportunities in sustainable development investments and ESG integration will take place in all phases of the investment management process.

Corporate (non-financial)

We take ESG issues into account in our Corporate Bond Investment processes by:

  • Making ESG research and analysis available systematically through the Knowledge Management System (KMS).
  • Including the key ESG ratings compared to peers in the investment case.
  • Having portfolio managers and analysts assess the ESG risks and determine how these may affect companies' performance and/or risk profiles and required premiums.
  • Having material ESG issues discussed at credit investment committees.

In addition to this we also screen entire portfolios against compliance with the UN Global Compact principles, apply an exclusion policy companies involved in the manufacture of controversial weapons, and engage with companies.

13.3. Additional information.[OPTIONAL]

We use an ESG country risk tool that is complementary to the other country risk research efforts led by APG's Economics and Financial Markets team, Global Emerging Markets team, and Financial Risk team. The tool is based on public sources generating detailed information for over 165 countries on 31 Environmental, Social and Governance criteria. Having the possibility to scrutinise and apply different weights to criteria and categories, portfolio managers can adjust the scoring according to their views and perform in-depth analysis on the underlying information. The methodology takes into account APG's exclusion policy on countries subject to an arms embargo by the UN Security Council in whose bonds we cannot invest.


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