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Yarra Capital Management

PRI reporting framework 2019

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

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.

A strong ESG approach improves Risk/Return and is the right thing to do. 

Quantitative & Qualitative ESG assessment.

At the fixed income level our process is as follows:

  • Firstly, we identify ESG issues through extensive sovereign, company and industry due diligence including a proactive program of engaging all stakeholders and third party consultants/brokers to undertake bespoke research. ESG considerations are analysed across seven main factors.
  • ESG issues which are identified are included in our one-page investment thesis produced for each issuer, and factored into our credit assessments.
  • If we assess the ESG issues identified to be sufficiently material and a threshold issue, we will not invest in that company. An ESG rating below BB is considered a 'threshold', overriding all favourable credit or relative value views.
  • ESG issues identified and found not to be threshold issues are incorporated into our valuation work. This will typically result in a lower than otherwise credit rating, which will typically require greater compensation/return to justify the investment. Changes in our ESG ratings (positive or negative) can also be a driver of investment decisions.

 

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]


(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

ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.

The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform. 

All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.

The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:

  • Financial profile - 20-30%
  • Business profile - 15-30%
  • Environmental, Social and Governance (ESG) profile - 15-30%
  • Market profile - 20-30%.

After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process (Not Completed)


FI 06. Screening - ensuring criteria are met

06.1. 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
Norms-based screening

06.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 07. Thematic investing - overview (Private)


FI 08. Thematic investing - themed bond processes

08.1. 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..

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

ESG considerations are analysed across seven main factors and are considered in our internal credit rating process. An ESG rating below BB is considered a 'threshold', overriding all favourable credit or relative value views.

08.3. Additional information. [Optional]


FI 09. Thematic investing - assessing impact

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

09.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.

The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform. 

All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.

The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:

Financial profile - 20-30%
Business profile - 15-30%
Environmental, Social and Governance (ESG) profile - 15-30%
Market profile - 20-30%.

After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.

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

SSA

ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.

The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform. 

All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.

The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:

Financial profile - 20-30%
Business profile - 15-30%
Environmental, Social and Governance (ESG) profile - 15-30%
Market profile - 20-30%.

After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.

Corporate (financial)

ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.

The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform. 

All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.

The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:

Financial profile - 20-30%
Business profile - 15-30%
Environmental, Social and Governance (ESG) profile - 15-30%
Market profile - 20-30%.

After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.

Corporate (non-financial)

ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.

The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform. 

All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.

The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:

Financial profile - 20-30%
Business profile - 15-30%
Environmental, Social and Governance (ESG) profile - 15-30%
Market profile - 20-30%.

After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.

Securitised

ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.

The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform. 

All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.

The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:

Financial profile - 20-30%
Business profile - 15-30%
Environmental, Social and Governance (ESG) profile - 15-30%
Market profile - 20-30%.

After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.

10.3. Additional information [OPTIONAL]


FI 11. Integration - ESG information in investment processes

11.1. 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 used to adjust the internal credit assessments of issuers.
ESG analysis is used to adjust forecasted financials and future cash flow estimates.
ESG analysis impacts the ranking of an issuer relative to a chosen peer group.
An issuer's ESG bond spreads and its relative value versus its sector peers are analysed to find out if all risks are priced in.
The impact of ESG analysis on bonds of an issuer with different durations/maturities are analysed.
Sensitivity analysis and scenario analysis are applied to valuation models to compare the difference between base-case and ESG-integrated security valuation.
ESG analysis is integrated into portfolio weighting decisions.
Companies, sectors, countries and currency and monitored for changes in ESG exposure and for breaches of risk limits.
The ESG profile of portfolios is examined for securities with high ESG risks and assessed relative to the ESG profile of a benchmark.
Other, specify

11.2. Additional information [OPTIONAL]


FI 12. Integration - E,S and G issues reviewed

12.1. 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

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

SSA

ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.

The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform. 

All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.

The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:

Financial profile - 20-30%
Business profile - 15-30%
Environmental, Social and Governance (ESG) profile - 15-30%
Market profile - 20-30%.

After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.

Corporate (financial)

ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.

The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform. 

All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.

The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:

Financial profile - 20-30%
Business profile - 15-30%
Environmental, Social and Governance (ESG) profile - 15-30%
Market profile - 20-30%.

After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.

Corporate (non-financial)

ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.

The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform. 

All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.

The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:

Financial profile - 20-30%
Business profile - 15-30%
Environmental, Social and Governance (ESG) profile - 15-30%
Market profile - 20-30%.

After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.

Securitised

ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.

The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform. 

All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.

The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:

Financial profile - 20-30%
Business profile - 15-30%
Environmental, Social and Governance (ESG) profile - 15-30%
Market profile - 20-30%.

After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.

12.3. Additional information.[OPTIONAL]


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