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ACTIAM

PRI reporting framework 2019

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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
5 Screening alone
0 Thematic alone
0 Integration alone
65 Screening + integration strategies
0 Thematic + integration strategies
30 Screening + thematic strategies
0 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
5 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
95 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.

We chose to use a combination of screening, integration and/or thematic strategies for meeting our ESG goals. This combination enables us to identify the companies that violate our Fundamental Investment Principles (screening), to include ESG-considerations in our investments (integration). Next to that we focus on the themes climate, water and land. We have an inhouse developed methodology on combining sustainable and financial materiality. 

Likewise to our equities approach, we exclude or start engagement with companies that violate our ESG policies. We invest in sustainable activities (for example through green bonds) because we want to actively contribute to the transition to a low carbon economy. Via the ESG-score introduction we have a thematic approach to climate, water and land. We measure and report on results of the first two themes. For the land theme we are currently in the process of developing, integrating and implamaneting a science-based target in combination with developing an international standard on how to track/make calculations. Note that, the ACTIAM ESG Score and its process is applicable for both Fixed Income as well as Listed Equity. 

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research

02.1. Indicate which ESG factors you systematically research as part of your analysis on issuers.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
Environmental data
Social data
Governance data

02.2. Indicate what format your ESG information comes in and where you typically source it

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

02.3. Provide a brief description of the ESG information used, highlighting any differences in sources of information across your ESG incorporation strategies.

ACTIAM uses several sources of information. First of all, we use external data providers for both qualitative and quantitative ESG information, which is used for our screening and integration strategies. Secondly, we have an in-house ESG team that collects and provides information, including data for the thematic overlay. In addition, we use external specialised data providers for carbon emissions data in order to calculate the carbon footprint of our portfolios. For our impact alignment (SDGs) we have an exclusive partnership with an external company. We also team up with NGOs that have specific data or background on companies (FSC, GreenPeace, BBFAW amongst others). In-house FI portfolio manager and sell-side information is used in the investment decision process.

02.4. Additional information. [Optional]


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

specify description

          ESG scores are integrated into our administrative system. External audit is done on the annual report including ESG information as water, carbon footprint and ESGscore
        

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

          Internal committees, including CEO&CIO, evaluate the ESG policies and proposals for exclusion and inclusion, changes in the ESG scores, as well as engagement information
        

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

All investments and current holdings are screened based on the ACTIAM Fundamental Investment Principles. This policy constitutes a negative and norms-based screening method. Furthermore, positive screening is applied to a selection of portfolios and based on several themes: climate change, water, land, living and health, and vitality.

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Companies with exposure to renewable energy production receive a positive analyst score, which increases the companies' ESG score. In our active portfolios, where we steer on an ESG score that is as high as possible, this makes the companies more attractive for investment. We already started with this approach in 2016 and further integrated this into our processes.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

In 2018, we again update our sovereigns policy. Exclusionary screening criteria include being listed on a UN or EU weapons embargo list, being 'not free' in Freedom House reports, and World Bank governance indicators. Furthermore, a country being defined 'partly free' is individually assessed. 

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Companies that issue a green, social or sustainable bond are analysed according to our green bonds policy. If the bond is considered green by ACTIAM, the bond is assessed according to our framework. Resulting this assessment, the bond an ACTIAM ESG score. An average, this score is higher than the score of a "grey" bond from the same issuer. The framework can be found on our website: https://www.actiam.com/siteassets/2_oplossingen/documenten/nl/opl_oblassessment_gbsben.pdf

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Our Fundamental Investment Principles for companies apply to all investments and cover all UNGC as well as additional criteria. See https://www.actiam.com/siteassets/4_verantwoord/documenten/en/ri_fundamental_investment_principles_companies.pdf

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Companies with high performance on E, S and G issues receive a high(er) ESG score, which increases the attractiveness (under similar risk and returns) for investment in our active portfolios.

05.2. Additional information.


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?

other description

          in case of mandates and structured loans, additional (desk) research is done
        
Positive/best-in-class screening
Norms-based screening

06.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 07. Thematic investing - overview

07.1. Indicate what proportion of your thematic investments are:

100 %

07.2. Describe your organisation’s approach to thematic fixed income investing

A combination of environmental and social themes is applied to our actively managed strategies, i.e. climate change, water, and land. ACTIAM identifies companies that contribute negatively and positively to these themes. The negative contributors are excluded from investment in the actively managed fund; the positive contributors receive an upgrade in their ACTIAM ESG score, thereby increasing the likelihood of being selected for investment.

ACTIAM has a specific policy for green, social and sustainable bonds. This policy requires bonds to be issued according to the Green Bond Principles, as well as criteria for the use of proceeds, reporting and the achievability of the projects and targets. The policy includes a blacklist of activities that we do not want to finance through sustainable bonds. Social or environmental impact needs to be measured / there need to be credible indicators, such as CO2 reduction or avoided CO2. ACTIAM wants to prevent the locking in of money in less ambitious projects. As part of our energy transition policy, we use green bonds to stimulate renewable energy and energy efficiency. Bonds that are labelled 'green' by the in-house ESG team receive an ACTIAM ESG score of 75, 85 or 100. The score depends on the level of positive impact and whether the bond meets the ACTIAM future proof business test. See also https://www.actiam.com/siteassets/2_oplossingen/documenten/nl/opl_oblassessment_gbsben.pdf

07.3. Additional information [OPTIONAL]


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..

          We ask issuers to formulate disclosure targets (such as carbon reduction targets) and encourage issuers to issue green bonds. We engage on progress
        

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

There are two different processes. For our thematic overlay (climate change, land, and water), the ESG team researches the issuer and excludes or upgrades bonds issued by that party based on their negative or positive contribution to one of our themes.

For green and social bonds, the bond is analysed primarily at bond and use of proceeds level. However, we also consider whether the issuer makes real efforts, for example, towards an energy transition and more sustainability to avoid green washing. The bond needs to meet the criteria of ACTIAM's green bond policy at the minimum. These criteria go beyond GBP or CBI principles. If this is not the case, the bond will not be registered as a green bond in ACTIAM's system, thereby decreasing the likelihood that this bond will be bought - if the bond is still bought. Plus if it is bought, it will not be registered as a green bond and will not be included in ACTIAM's administration of green bonds. After the Green Bond mark is given, an assessment is done and an ACTIAM ESG score is given. Within the process, there is close corporation between Portfolio Management, Treasury and the ESG team.

08.3. Additional information. [Optional]

Following FI 08.2. 

Often, roadshow of Green Bond issuers are visited by PM and ESG. Discussions on issuers and use of proceeds happen on a regular basis. The final decision of the internal Green Bond mark and the ACTIAM ESG Score is done by the ESG team. 


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]

Part of our green and social bond policy is that issuers need to report at least annually. These requirements are different for the other thematic bonds, as they are excluded or upgraded based on the analysis of the issuer, not the bond. We track progress on the (reporting) targets and impact of the projects/activities that are financed.

For our focus themes climate, water and land we have set long term targets. Twice a year we measure the progress on water and climate and we report on this. We have an independent audit conducted on the carbon and water footprint of our FI (and equities) investment funds early 2019 (over 2018 data).


(C) Implementation: Integration

FI 10. Integration overview

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

An ACTIAM ESG score is assigned to all assets in the investment universe plus an ESG score is determined at portfolio level. The aim is to achieve the highest possible ESG score. From February 22, 2018 onwards, this aim is further specified with a target ESG score which is either in the upper quartile of the spectrum or at least 10 points higher than the ESG score of the related benchmark. This benchmark can vary per strategy. 

The minimum requirement is that the portfolio must be constructed in such a way that the ESG score of the portfolio is aimed to be at least higher than the ESG score of the benchmark at all times. In order to realise the ESG objectives, the portfolio managers will prefer bonds issued by companies which are actively contributing to the SDGs. In that context, the managers will aim to keep at least 10% of the portfolio in Green, Social and/or Sustainable Bonds.

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

SSA

For sovereigns, we have an adapted ESG score that is constructed of indicators relevant for sovereigns as opposed to companies. However, the process is the same. First a screening is conducted based on the ACTIAM Fundamental Investment Principles, which leads to the exclusion of sovereigns, and an ESG score is attributed to the remaining sovereigns. For determining the ESG score we look at different data sources like contribution to the SDGs (see SDGindex.org for more information).  

Corporate (financial)

The process is the same as described in FI 10.1, other criteria apply for determining the ACTIAM ESG score. 

Corporate (non-financial)

The process is the same as described in FI 10.1, other criteria apply for determining the ACTIAM ESG score. 

Securitised

The process is the same as described in FI 10.1, other criteria apply for determining the ACTIAM ESG score. 

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

The ESG information is systematically incorporated into our systems and is applicable to all portfolios. Hereby, the portfolio manager has an ESG score for all the issuers that can be invested in. These scores are reviewed and updated on a regular basis. The portfolio manager is required to take the ESG information into account, as the ESG score of his/her portfolio needs to be higher than the ESG score of the benchmark at the minimum (dependent on the specifics of the fund or mandate). Next to that there is a target to have to portfolio score as high as possible. This is a KPI for the portfolio managers. The scores are also tracked by the Fund Management Committee.

Corporate (financial)

Please see above as the ACTIAM process for ESG intergation is independent of type of fixed income instrument

Corporate (non-financial)

Please see above as the ACTIAM process for ESG intergation is independent of type of fixed income instrument

Securitised

Please see above as the ACTIAM process for ESG intergation is independent of type of fixed income instrument

12.3. Additional information.[OPTIONAL]

The ESG scores are available for all portfolios, however the implementation of a minimum score for the portfolio is not currently applicable to a mandates. Our Fundamental Investment Principles are.


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