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Pendal

PRI reporting framework 2019

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Outputs and outcomes

FI 17. Financial/ESG performance

17.1. Indicate whether your organisation measures how your incorporation of ESG analysis in fixed income has affected investment outcomes and/or performance.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
We measure whether incorporating ESG impacts portfolio risk.
We measure whether incorporating ESG impacts portfolio returns.
We measure the ESG performance/profile of portfolios (relative to the benchmark).
None of the above

17.2. Describe how your organisation measures how your incorporation of ESG analysis in fixed income has affected investment outcomes and/or ESG performance. [OPTIONAL]

17.3. Additional information.[OPTIONAL]


FI 18. Examples - ESG incorporation or engagement

18.1. Provide examples of how your incorporation of ESG analysis and/or your engagement of issuers has affected your fixed income investment outcomes during the reporting year.

ESG issue and explanation

We review the ESG risks and controls for issuers as part of our analysis. In this example we engaged with the CEO noting that, whilst the core activities examined contributed to decabonisation (in this case the production of electric vehicles), we held concerns that the company did not have underlying ESG policies in place.

The company noted that aspects of ESG policies were embedded within other policy and procedural documents but agreed they would be further strengthened by a more focused approach.

 

Impact on investment decision or performance

The explanation and commitments received were sufficient to provide us with comfort in proceeding.

ESG issue and explanation

An undertaking was sought from the senior management of the operators of this piece of government infrastructure that it would produce an annual sustainability report and publicly provide more detail on its ongoing work to incorporate sustainability into most facets of its business.

Impact on investment decision or performance

Comfort was achieved that practice and disclosure will continue to progress.

ESG issue and explanation

Concerns about structural headwinds with respect to consumer demand for healthier products led us to engage with this issuer and have led us to hold an underweight position in this company across our fixed income funds. In our view these social risks had not been priced into the issuer's credit spread and therefore we expected them underperform over time.

Full details of our process of analysis is publicly available at https://www.pendalgroup.com/wp-content/uploads/2018/06/2018-06-Case-Study-on-Credit-Risk_Coca-Cola-Amatil.pdf 

Impact on investment decision or performance

Credit spreads underperformed against peers throughout 2017 and 2018 as social trends changed and competition intensified. Our ability to integrate these social considerations into the analysis led to us minimising our exposure as a result.

ESG issue and explanation

We excluded this particular company based on a number of ESG concerns - its primary operations are in the gaming sector, elevating social and regulatory risk. Further, were concerns with respect to its board composition, including the move to appoint an executive chair as well as its apparent lack of oversight with respect to conduct-related risks as evidenced by a number of high profile incidents and an unflattering report from regulators.

Impact on investment decision or performance

Excluded on best of sector grounds

18.2. Additional information.


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