ESG factors are considered as part of a wider array of risk factors when performing investment analysis. Empirical data on bond returns and credit ratings shows that the greatest success of integrating ESG is in the Governance area. Our analysis process incorporates consideration of issues related to ownership, succession planning, and the governing board. For example, when waves of leveraged buyouts were taking place, the credit team focused on governance structures of portfolio companies to identify risks.
Our portfolios have sector exposure to Energy, Metals and Mining, and Utilities-sectors that are flagged by Moody's and our own internal analysts as having moderate to elevated exposure to environmental risks. Thus, integrating Environmental analysis into our credit process is critical in assessing emerging trends and regulatory changes that affect credit quality and relative value. Our investments include companies operating in emerging market countries where employee rights and safety are less established and enforced, which is an important element of our analysis of Social risk factors.
To integrate Environmental or Social risk factors into our processes, our analysts use a range of materials and company interactions to inform investment opinions. These include: issuer required SEC filings, offering documents, bond indentures, and third-party reports.