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Nomura Corporate Research and Asset Management Inc.

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.
Corporate (non-financial)
0 Screening alone
0 Thematic alone
100 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 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.

NCRAM believes that consideration of sustainability is congruent with our Strong Horse investment philosophy. ESG analysis helps us to invest in stronger companies, identify improving credits, and avoid defaults.

 

We consider ESG issues to be important factors when analyzing a company’s sustainability and investment prospects, and the study of these issues is incorporated into our investment process. We will consider a company’s record in how they treat the environment, how they treat their employees, how they treat the communities in which they operate, and their impact on their customers. We consider climate change and carbon emissions as part of our environmental risk analysis, and we incorporate a company’s environmental record into our assessment of the issuer. In addition, we will consider their track record in behaving fairly towards bondholders and other investors. To augment our internal research, NCRAM has engaged Sustainalytics to provide external research on ESG factors. NCRAM also has frequent meetings and dialogue with debt issuers, and our analysts and portfolio managers will discuss ESG factors with issuers at those forums.

 

We are committed to continuing to work with our clients and within the broader investment management industry to invest responsibly in our existing portfolios and going forward.

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
Corporate (non-financial)
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  

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

NCRAM’s dedicated high yield analysts perform the vast majority of the research utilized in the management of high yield portfolios. Analysis of ESG factors is based on both direct communication with the issuer as well as secondary sources. NCRAM has also engaged Sustainalytics to provide external research on ESG factors.  NCRAM analysts will synthesize this information and include a summary of an issuer’s strengths and risks with regard to ESG factors in new-issue or other introductory credit reports. Credit reviews also include an analysis of ESG factors. Analysts and portfolio managers consider those factors in their credit analysis and assess whether the strengths and risks are priced into market yields and spreads. Existing positions are continually monitored by the research analyst and also are formally reviewed during periodic portfolio reviews among the portfolio manager, CIO and credit analyst.

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:

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

03.3. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

NCRAM has a strong commitment to responsible and sustainable practices in investing client assets entrusted to us. With regard to client investing, we believe that consideration of sustainability is congruent with our Strong Horse investment philosophy. We incorporate Environmental, Social and Governance (ESG) factors when analyzing an issuer’s sustainability and investment prospects. As we evaluate an investment opportunity, we consider whether the company acts in a sustainable way with regard to the environment and with regard to their employees and other constituents. We also weigh their corporate governance with regard to how they treat shareholders and how they treat bondholders. We engage with issuers when we have ESG concerns. We believe that this helps us to invest in stronger companies and improving credits.

 

NCRAM became a signatory to the United Nations Principles for Responsible Investment (UN PRI) in 2013. NCRAM launched an ESG Global High Yield Strategy in 2018.

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

Corporate (non-financial)

ESG considerations are a standard part of our investment process. Portfolio managers and analysts continually evaluate the management of the issuers in our portfolios and the issuers we are considering for investment. As we evaluate the management, we consider whether they act in a sustainable way with regard to the environment and with regard to their employees and other constituents. We also weigh their corporate governance with regard to how they treat shareholders and bondholders. We believe that consideration of sustainability helps us invest in stronger companies and improving credits, and avoid defaults.

 

NCRAM research analysts include a summary of an issuer’s strengths and risks with regard to ESG factors in new-issue or other introductory credit reports. To augment our internal research, NCRAM has engaged Sustainalytics to provide external research on ESG factors. Analysts and PMs consider those factors in their credit analysis and assess whether the strengths and risks are priced into market yields and spreads. Existing positions are continually monitored by the research analyst and also are formally reviewed during periodic portfolio reviews among the portfolio manager, CIO and credit analyst. Should we assess that the company’s activities may not reflect our ESG principles, the holding will be re-assessed. Our CIO supervises our investment process, including the consideration of ESG factors.

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
Corporate (non-financial)
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
Corporate (non-financial)

Environmental

Social

Governance

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

Corporate (non-financial)

NCRAM’s dedicated high yield analysts perform the vast majority of the research utilized in the management of high yield portfolios. Analysis of ESG factors is based on both direct communication with the issuer as well as secondary sources. NCRAM has also engaged Sustainalytics to provide external research on ESG factors.  NCRAM analysts will synthesize this information and include a summary of an issuer’s strengths and risks with regard to ESG factors in new-issue or other introductory credit reports.  Credit reviews also include an analysis of ESG factors. Analysts and portfolio managers consider those factors in their credit analysis and assess whether the strengths and risks are priced into market yields and spreads. Existing positions are continually monitored by the research analyst and also are formally reviewed during periodic portfolio reviews among the portfolio manager, CIO and credit analyst.

12.3. Additional information.[OPTIONAL]


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