Additional Information regarding our in-house ESG research:
A sustainable investment approach makes it possible to systematically incorporate in the investment process the risks and rewards created by the interplay of environmental, social and economic forces acting on companies, governments and public institutions. In our ESG competence center, a team of six sustainability analysts is responsible for evaluating the sustainability credentials of sectors, individual companies, corporate and government bonds and public financial institutions.
Our sustainability analysis complements traditional financial analysis, and is a key element in the investment process for mandates. The starting point is the investment universe, which comprises the biggest securities in the respective asset class (usually the relevant benchmarks in the case of equities), as well as other investment ideas provided by Portfolio Management and Sustainability Research. The dedicated team of sustainability analysts is responsible for evaluating the sustainability credentials of sectors, individual companies, corporate and government bonds and public financial institutions.
The detailed evaluation criteria differ among the individual sectors, as do the weightings used to aggregate the assessments of these detailed criteria to arrive at an overall rating.
CORPORATE BONDS: The sustainability rating is composed of two dimensions, the Sector Rating and the Company Rating.
The Sector Rating assesses the company's exposure to environmental and social risks, primarily based upon on the environmental and social impacts of that particular industry. This is measured by environmental criteria such as carbon emissions, water consumption, air pollution and waste volumes; consideration is also given to social criteria such as working conditions (work accidents, staff turnover, wages and benefits) and the potential for social conflict (activities in countries with poor working conditions and human rights records, corruption, unfair competition, controversial products such as armaments, etc.). The entire value chain for the relevant sector is reviewed for this purpose (including the supply chain and the entire product life cycle).
The Company Rating assesses an individual company's contribution to reducing environmental and social risks and how well it exploits the corresponding opportunities. The rating is based upon a matrix of criteria developed in-house. The matrix covers the following three aspects:
Environmental responsibility: a company's measures and initiatives to reduce the environmental impacts in production, supply chain and product usage.
Social responsibility: a company's measures and initiatives to take into consideration the interests of customers, employees, suppliers and society as a whole, for example product safety, occupational health& safety, or working conditions at suppliers.
Corporate governance: embedding sustainability aspects in corporate strategy and business model; management systems; corporate governance standards.
GOVERNMENT BONDS The two dimensions for the sustainability rating of government bonds are resource availability and resource productivity. Resource availability includes the current and future availability of a country's natural resources (primarily biocapacity minus ecological footprint), as well as its social and financial resources. Resource productivity measures the efficiency of transforming resources into material wealth (gross domestic product), the efficiency of the education and health system with respect to resource consumption, as well as the efficiency of a country's economic, political and social processes, plus the overall conditions.
PUBLIC FINANCIAL INSTITUTIONS Public financial institutions are state-supported banks with a set mandate, such as financing export activity or combating poverty. The definition of the mandate determines to what extent the institution is promoting sustainable development. The way how the mandate is implemented determines how the institution performs within the framework of a company’s rating which is based on the rating criteria for banks.
PUBLIC COVERED BONDS Covered bonds are eligible for investment if both the issuer and cover pool are sustainable. The issuer rating follows the same methodology as corporate ratings within that sector, which in most cases are banks (described above, not shown here). The cover pool comprises loans to the public sector as well as government bonds. The sustainability rating of the cover pool thus corresponds to the weighted average rating of the countries financed.