This report shows public data only. Is this your organisation? If so, login here to view your full report.

RBC Global Asset Management

PRI reporting framework 2019

Export Public Responses
Pdf-img

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.
SSA
0 Screening alone
0 Thematic alone
0 Integration alone
99 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
1 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
99 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
1 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
99 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
1 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 believe that ESG factors can impact the financial performance of the corporate and sovereign issuers in which we invest. We integrate ESG factors within our investment processes with the aim of enhancing our pricing and management of risk. BlueBay has enhanced its fixed income ESG integration and our various fixed income teams took meaningful strides in 2018 to further integrate ESG factors into their respective investment processes.

A combination of screening and integration is applied to our designated socially responsible strategies. These strategies have been specifically designed to screen out companies that manufacture products and/or provide services that socially responsible investors may wish to avoid, or have poor ESG practices. In addition to a negative screen, integration is used to assess the remaining companies to ensure that relevant ESG factors are appropriately addressed. Please see FI 01.3 for additional information regarding our firm-wide screens.

Thematic investing is applied in our Access Capital Community Investment strategy and RBC Impact Bond strategy in the U.S., which aim to deliver competitive returns while simultaneously having a positive social and/or environmental impact through their investments.

Beyond norms-based screens, BlueBay applies ESG-based exclusionary screens to pooled funds and for interested clients.

01.3. Additional information [Optional].

RBC GAM also employs norms-based screening to all of its investments.  No RBC GAM investment team will knowingly invest in companies associated with the production, use or distribution of anti-personnel land mines or cluster munitions. These exclusions only apply when we control the investment policy for a portfolio. For mandates where we do not control the investment policy, our clients may request different exclusions or no exclusions. We have engaged an independent third party research provider to provide us with a list of companies that should be excluded on the basis of this policy, which is updated monthly.

Where there are full economic sanctions that prohibit any financial dealings with a foreign state, including investment in entities operating under the authority of the foreign state, we will not invest in securities that fall within the sanctions. Where sanctions have been imposed against foreign countries that do not prohibit financial dealings we will identify and assess any risk and consider whether the investment would still be in the best interests of our clients.

As a result, the majority of our AUM in fixed income falls under the combined 'Screening + Integration' ESG incorporation strategy based on the Reporting Framework's incorporation strategy definitions.


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)
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  

specify description

          Company itself, other stakeholders (e.g. NGOs, academia, regulators)
        

Indicate who provides this information  

specify description

          Company itself, other stakeholders (e.g. NGOs, academia, regulators)
        

Indicate who provides this information  

specify description

          Company itself, other stakeholders (e.g. NGOs, academia, regulators)
        

Indicate who provides this information  

specific description

          Company itself, other stakeholders (e.g. NGOs, academia, regulators)
        

Indicate who provides this information  

specify description

          Company itself, other stakeholders (e.g. NGOs, academia, regulators)
        

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

We have engaged a number of external research firms to provide specialized ESG research which we use in conjunction with our own internal analysis. This research provides us with information on ESG risks and opportunities relevant to specific issuers, industries, and countries and also provides us with broad-based thematic research relevant to general ESG themes.

In addition, our fixed income teams conduct robust country and issuer-level research, including an analysis of ESG factors that may be material to their investments. Their analysis relies on information produced by multiple outlets, including NGOs, ESG research providers and traditional media sources. In addition, direct engagement plays a key role in the assessment and identification of ESG risks and opportunities.

BlueBay uses combination of internal and external resources for ESG-related data, which is derived from a range of providers and stakeholders.

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

          BlueBay interacts with industry peers in order to obtain further information on best practices that can complement its internal efforts
        

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

          BlueBay's ESG team actively participates in cross-desk sector analyst forums, sharing insights and views
        

03.3. Additional information. [Optional]

Our investment teams continue to develop their respective ESG integration processes, with enhancements being made each year. For instance, our Canadian Fixed Income team has now embedded ESG content into all internal issuer reports and, to complement its ESG analysis, our Global Fixed Income and Currencies team has created an "ESG Watch" group to discuss and aggregate ESG research, trends and developments.

All of our investment teams have access to comprehensive ESG research and are incorporating ESG factors into their investment decision making. Further, we integrate ESG scores into our standard and proprietary trade management software/applications. BlueBay has a framework to assess ESG investment risk and incorporates ESG information as a standard item in issuer investment related documentations in its private debt business. Similarly, our High Yield Bond team in Toronto incorporates an analysis of ESG factors into its security selection due diligence investment process and the monitoring of portfolio investments. 


(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)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

Our designated socially responsible strategies, which include fixed income strategies, apply negative screens for certain industries. Most of the screening criteria are based on a threshold of involvement defined in terms of percentage of annual revenue, but issuers involved in significant or severe ESG controversies or identified as having lagging ESG practices by our third-party research provider are also ineligible for investment.

Qualitative screening criteria are also applied to these strategies. The application of qualitative criteria involves evaluating each company's overall performance in each issue area and balancing strengths and concerns.

In addition, in 2018 we launched a new Global Sovereign Bond strategy into incubation. The strategy will provide investors with access to a broad array of developed market and emerging market debt and is differentiated from other Fixed Income sovereign strategies in that the final country allocation is adjusted by a country’s relative ranking on the UN Human Development Index.

​We also apply custom ESG screens for a small number of segregated fixed income institutional accounts for both RBC GAM and BlueBay, and the exclusionary criteria may differ by client.

BlueBay also applies an ESG tilt to one of its multi-asset credit strategies.

04.3. Additional information. [Optional]

RBC GAM also employs norms-based screening to all of its investments. No RBC GAM investment team will knowingly invest in companies associated with the production, use or distribution of anti-personnel land mines or cluster munitions. These exclusions only apply when we control the investment policy for a portfolio. For mandates where we do not control the investment policy, our clients may request different exclusions or no exclusions. We have engaged an independent third party research provider to provide us with a list of companies that should be excluded on the basis of this policy, which is updated monthly.

Where there are full economic sanctions that prohibit any financial dealings with a foreign state, including investment in entities operating under the authority of the foreign state, we will not invest in securities that fall within the sanctions. Where sanctions have been imposed against foreign countries that do not prohibit financial dealings we will identify and assess any risk and consider whether the investment would still be in the best interests of our clients.


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

Our designated socially responsible strategies have negative screens for alcohol, gaming, military weapons, adult entertainment, tobacco and cannibis products. Most of the screening criteria are based on a threshold of involvement that is defined in terms of percentage of annual revenues. Additionally, we apply negative screening regarding controversies across ESG areas. Sovereign issuers are evaluated for investment based off our service provider's proprietary risk monitor. Countries are assessed based on their performance in a variety of ESG themes including corruption, political stability, child labour, gender equality, carbon emissions and natural disasters. Issuers with excessive risk are deemed ineligible for investment in these strategies.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Where there are full economic sanctions that prohibit any financial dealings with a foreign state, we will not invest in securities that fall within the sanctions. Where sanctions have been imposed against foreign countries that do not prohibit financial dealings but restrict other activities, we will review the restrictions in the course of the investment process to understand the sanctions and their implications, identify and assess any risk and consider whether the investment would still be in the best interests of our clients. When we control the investment policy for a portfolio, we will not knowingly invest in companies whose business activities would contravene the Anti-Personnel Landmines Convention or the Convention on Cluster Munitions. These exclusions apply to corporate credit holdings, but do not apply to derivatives or other index exposures where our exposure is indirect and outside of our control.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Qualitative screening criteria are applied to our designated socially responsible strategies in areas such as community, employee relations and environment. The application of qualitative criteria involves evaluating each company's overall performance in each issue area and balancing strengths and concerns. Our qualitative screening criteria include: community, corporate governance, employee relations, environment, human rights and product/business practices. In the specific areas of occupational health and safety and environmental performance, we apply the qualitative screening criteria using a best-of-sector approach, where each company's record is evaluated relative to its industry counterparts. The standards for performance are industry best practices.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

The RBC Global Sovereign Bond strategy was launched into incubation in 2018 to provide investors with access to a broad array of developed market and emerging market debt. The strategy is differentiated from other fixed income sovereign strategies in that the final country allocation is adjusted by a country’s relative ranking on the UN Human Development Index.

The UN Human Development Index evaluates and scores a country on three key dimensions of human development: a long and healthy life, being knowledgeable and having a decent standard of living. We believe a nation that values its human capital has a strong relationship with economic management and societal development. Ultimately, this will translate into investment returns commensurate with the riskiness of the investment.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

BlueBay's Global High Yield ESG Bond strategy has an explicit exclusion based on corporate issuers involved the production of tobacco as well as those involved in coal-related mining and power production (thermal coal) where this exceeds 30% of revenues/operations. Further, the strategy excludes issuers which are deemed to fail the UN Global Compact principles.

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

          Data used for the screening criteria of our socially responsible investment strategies is updated monthly.
        
Positive/best-in-class screening

other description

          Data used for the screening criteria of our socially responsible investment strategies is updated monthly.
        
Norms-based screening

other description

          Data used for the screening criteria of our socially responsible investment strategies is updated monthly.
        

06.2. Additional information. [Optional]

Where there are full economic sanctions that prohibit any financial dealings with a foreign state, we will not invest in securities that fall within the sanctions. Where sanctions have been imposed against foreign countries that do not prohibit financial dealings but restrict other activities, we will review the restrictions in the course of the investment process to understand the sanctions and their implications, identify and assess any risk and consider whether the investment would still be in the best interests of our clients.

When we control the investment policy for a portfolio, we will not knowingly invest in companies whose business activities would contravene the Anti-Personnel Landmines Convention or the Convention on Cluster Munitions. These exclusions apply to corporate credit holdings, but do not apply to derivatives or other index exposures where our exposure is indirect and outside of our control.


(B) Implementation: Thematic

FI 07. Thematic investing - overview

07.1. Indicate what proportion of your thematic investments are:

0.2 %
99.7 %
0.1 %

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

We provide impact investing through our Access Capital Community Investment strategy and our RBC Impact Bond strategy, investment solutions in the U.S. The Access Capital strategy aids underserved communities through the support of low and moderate income home buyers, affordable rental housing units, small business administration loans and economic development projects while seeking to earn a market rate of return. By extension, the strategy may invest in environmental projects where the underlying intent of the investment addresses the social goals outlined above.  The RBC Impact Bond strategy invests in securities with the intention of generating net-positive social and environmental impacts that produce competitive financial returns.  For each project, we measure who gets the dollars and how they are used, with a focus on projects that are geared towards targeted demographics or outcomes (e.g., underserved communities, social equality, or environmental causes). We track the use of proceeds and the beneficiaries for each investment in the portfolio, and all investments are evaluated for how they influence the United Nations Sustainable Development Goals. 

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..

          RBC GAM previously collaborated with other investors through Ceres’ Investor Network on Climate Risk to release a Statement of Investor Expectations.
        

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

RBC GAM's RBC Impact Bond strategy and Access Capital Community Investment strategy require that bond proceeds are only allocated to environmentally and socially beneficial projects, in order to be eligible for inclusion in the strategy. 

Our Canadian Fixed Income team and our European Credit team have participated in several green bond issuances. In order to ensure that proceeds are allocated to environmentally and socially beneficial projects, the Canadian Fixed Income team, for instance, requires that issuers demonstrate the project benefits. Our European Credit team requires issuers to meet the assurances listed in FI 08.1 for its green bond investments and would consider further escalation in the event any such assurances were not met, beginning with engagement.

In the event that such themed bond proceeds are not disbursed appropriately, we would engage directly with the issuer.

RBC GAM previously collaborated with other investors through Ceres’ Investor Network on Climate Risk to release a Statement of Investor Expectations for Green Bonds.

08.3. Additional information. [Optional]


FI 09. Thematic investing - assessing impact

09.1. Indicate how you assess the environmental or social impact of your thematic investments.

          Every investment must meet specific social impact criteria (detailed below)
        

09.2. Additional information. [Optional]

In regard to the Access Capital Community Investment strategy, the following social impact criteria are required to be met for each investment (as applicable):
• the investment must serve a low to moderate income family or community;
• home owners who earn 80% or less of the area-median income or multi-family rental housing that is 51% or more subsidized;
• nursing homes that serve a high percentage of medicare patients;
• small business loans in low to moderate income census tracts; or
• taxable municipal bonds that serve low to moderate income communities or populations.

The RBC Impact Bond strategy employs a proprietary impact measurement process that evaluates each holding based on how it may positively (or negatively) impact our stakeholders, defined as the environment and individuals or groups of individuals who are considered to be disadvantaged, vulnerable, or underserved in some fundamental way, either socially or economically. Our intention is to invest the highest percentage of dollars possible to create or sustain a positive impact for one or more of our stakeholder groups. In addition to defining the beneficiary (the stakeholder) of the strategies, we evaluate how each project influences the Sustainable Development Goals. The measurement process results in a dashboard that compares the social and environmental impacts of an investment in the strategy versus an investment in a standard bond portfolio (the index).


(C) Implementation: Integration

FI 10. Integration overview

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

In general, for fixed income, we consider ESG factors when they have the potential to impact the value of our investment. We examine ESG factors at both the issuer and sector level, seeking to understand each issuer individually and through the lens of local norms and the laws and regulations of the market in which it operates; however, we believe that there are some basic ESG principles that are applicable across all markets. Those include the need for a qualified and effective board that is accountable to shareholders, robust accounting and risk management systems, appropriate policies and practices to address environmental and social risks and opportunities to the business, and policies and controls designed to ensure full compliance with all applicable laws and regulations. Principles applicable to sovereign issuers include appropriate anti-corruption measures, ease of doing business and environmental considerations.

Consistent with our Approach to Responsible Investment, each of our fixed income teams have developed their own ESG integration methodologies - ensuring that ESG integration is a value-additive process. Our individual investment teams are at varying stages in integrating ESG into their fixed income investment analysis and notable advancements were achieved in 2018. All of our teams have access to robust ESG research that is used in the investment decision making process. For example, some teams utilize ESG data in their quantitative screens, including external scores from third party research providers.

Key to our investment teams' approach is engaging with management teams. Engagement allows our teams to form a view on the quality of management and governance, and assess the impact of an issuer's products and operations on the environment and society. In addition, our Canadian Investment Grade Corporate Credit team uses engagement to complement its in-depth analysis on how ESG factors may impact the company’s operating performance and future cash flows

 

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

SSA

We believe that meaningful ESG integration must be driven by our investment teams, so that they can determine how ESG-related information can best be incorporated into their investment process in a way that adds value for our clients. We believe that this will lead to thoughtful, innovative approaches. For example, our Emerging Markets Sovereign Bond team incorporates ESG in a quantitative manner in its selection process. Every country in the investment universe is assessed using its Global Fundamental Model along five quantitative factors including an ease of doing business rating and the United Nations Development Programme's Inequality-adjusted Human Development Index.

Among emerging market countries, which tend to have weaker governance structures than those in developed markets, we look both for higher relative ESG ratings as well as countries showing positive ESG momentum. Along with other factors, we believe better ESG scores improve both the ability and willingness of countries to service their debts.

One of the challenges of screening for ESG factors is data quality. Appropriate ESG measures can suffer from infrequent reporting, substantial lags, or be inconsistently gathered. It is for this reason that an integrated approach is important. The Sovereign Bond team believes that ESG must be considered as one of many factors in the investment decision process.

The Global Fundamental Model also incorporates the environmental score of a third-party ESG research provider, assisting the team in its evaluating of a country's long-term competitiveness, as impacted by its ability to manage and leverage natural resources, and manage any environmental vulnerabilities. This environmental factor can play a key role in the Global Fundamental Model. For example, the Philippines scores well on economic factors but has a poor environmental score due to its vulnerability to flooding and forest fire risks brought about by climate change.

Engagement occurs less frequently for SSA fixed income, although it may still be done in certain circumstances (particularly by BlueBay) and increasingly as municipalities, states/provinces and governments issue green bonds.

Corporate (financial)

Our fixed income teams believe ESG generally fits well with an active management approach as many ESG risks are currently not adequately priced in by the market. As a result, ESG integration enables investors to explicitly, proactively and systematically take these often-ignored factors into account, complementing existing financial credit analysis.

The ESG integration strategy differs by investment team as each has organically developed its own process. For instance, our Canadian Investment Grade Corporate Credit team hones in on ESG factors deemed to be material to an issuer’s debt servicing capabilities, which in turn influence the final internal credit rating and investment decision. ESG factors are integrated throughout the investment process, including the use of third-party ESG data, engaging with management on ESG factors, and embedding ESG factors naturally into internal reporting, rather than as a specific section, in order to arrive at an internal credit rating that informs the investment decision.

As another example, our Global High Yield Bond team incorporates an analysis of ESG factors into its security selection due diligence investment process and the monitoring of the strategies' investments. Consideration of ESG factors is a subset of multiple factors assessed in its rigorous process which can influence the investment worthiness of a company or industry. Resources used to assess ESG factors may include company meetings and presentations, company filings with the SEC and press releases, credit rating agency and sell-side analyst reports, third-party research and ESG scoring and analysis by third-party ESG research providers.

In this particular asset class, our investment teams tend to focus on governance factors, which include assessing a board's effectiveness and independence, management's risk management systems and policies, and any impact of ESG factors on the credit cycle. ESG engagement is still advantageous for fixed income strategies even though it is more difficult than for equity strategies. Issuers need to come to the debt market to access new capital as issuing equity is not always the most cost effective or efficient option and, as a result, fixed income investors have a degree of influence, especially at the primary issuance stage, and this should be utilised responsibly and constructively. Accordingly, engagement with management on ESG issues, particularly governance, occurs on a regular basis, especially before the issue comes to market.

Corporate (non-financial)

ESG integration for Corporate (non-financial) securities is substantially similar to that for Corporate (financial) securities, except there is typically less focus on the credit cycle. Further, the material environmental and social issues considered will largely depend on factors such as business activities and an issuer's given industry.

10.3. Additional information [OPTIONAL]

For a more detailed discussion on BlueBay's ESG integration methods, please consult BlueBay's RI Transparency Report.


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)
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]

Regarding the impact of ESG analysis on bonds of an issuer with different durations/maturities, our Canadian Investment Grade Corporate Credit team may only invest in short-dated bonds for certain issuers/sectors that are more exposed to specific risks. A single ESG factor alone may not drive that decision, but ESG factors contribute to the overall decision to invest in shorter duration bonds. Similarly, our Canadian Investment Grade Corporate Bond team may reduce exposure to longer duration bonds of specific issuers due to overall riskiness, which includes risks associated with ESG factors. In such cases, the ESG risks may impact credit spreads and the team may opt to underweight or avoid investment in the issuer's longer-dated / long duration bonds.

For ESG bond spreads (interpreted above as additional spread required as compensation for ESG risks or where a specific issuer has both regular and green bonds outstanding), our Canadian Investment Grade Corporate Bond team notes instances where relative value mispricings arise as a result of ESG considerations. The team also looks at a corporate bond issuer’s outstanding bonds to determine if there are both regular and green bonds. As another example, where our European Corporate Credit team identifies specific ESG deficiencies, it would seek an additional spread to compensate for the incremental risk.

BlueBay's ESG evaluation process formalizes the incorporation of ESG factors its of fundamental analysis and requires this for every investment held. The evaluation includes an assessment of the issuer against its peer group in the case of both corporate and sovereign fixed income. The process enables ESG risks and investment materiality to be taken into account in investment decisions. In addition, BlueBay has applied sensitivity/scenario analysis to valuation models to compare the difference between base-case and ESG-integrated security valuation.

Lastly, BlueBay completes sector ESG briefings, ESG is discussed on a regular basis at the Market Risk Committee, and ESG metrics are added to standard credit metrics to inform the analysis of relative sovereign risks (e.g. political risk and comparison with fair value analysis).


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

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

SSA

Our investment teams have access to robust research on ESG factors and use different approaches to integrate this information into the investment decision making process. For example, some teams may use the information for portfolio weightings or to limit investments in less favourable regions.

Governance factors (such as corruption and the ease of doing business) are typically the most relevant for sovereign bonds, but our sovereign debt teams do integrate environmental and social factors into their analyses. For instance, our Sovereign Bond team considers the environmental scores of an ESG research provider and country-level social statistics, such as human development, in their Global Fundamental Model.

BlueBay sources sovereign issuer ESG data from third party providers, including ESG scores, research reports and profiles. The ESG scores are available to the investment teams via an online platform and the investment risk IT system. In addition, BlueBay will participate in webinars or request meetings from the research providers on issues of interest.

BlueBay's dedicated ESG team also attends weekly Investment Risk meetings, where discussions are held on key risk developments, including those related to sovereigns. From such meetings, BlueBay may prioritize further ESG analysis.

Finally, in 2018, BlueBay's Public Debt team, which invests in both corporate and sovereign debt, built upon strong ESG integration practices, rolling out a proprietary issuer ESG evaluation methodology that feeds into the wider investment decision-making process. This extensive project formalized the team’s analysis of material ESG issues, and the assignment of explicit 'Fundamental ESG Risk Ratings' and 'Investment ESG Scores' carries the added benefit of meaningful tracking.

Corporate (financial)

Our individual investment teams covering corporate debt continued to develop their respective ESG integration methodologies in 2018. Although each individual team integrates ESG factors into the investment process in a unique fashion, there are some consistent practices.

For instance, much of the teams' focus is on governance factors due to what to the strong link between good governance and creditworthiness. In addition, regardless of asset class, we find that companies that exhibit good governance practices tend to better manage their environmental and social risks and opportunities. In addition, all teams apply the same emphasis on engagement with management, which plays a key role in the teams' analytical processes, informing preliminary research and due diligence on both ESG and more traditional factors. We have found that numerous opportunities for engagement arise as bond market issuers require the support of key lenders to refinance existing debt or new funding. Lastly, many of our teams have begun integrating ESG factors into internal credit reports or ratings. The approaches to incorporating ESG factors into internal reports will differ slightly by team, with some teams embedding ESG throughout a report and others adding additional reporting in the event of particularly material ESG issues. However, the incorporation of ESG issues into internal credit reports is prevalent across our fixed income teams.

Finally, our fixed income teams continue to investigate leveraging ESG data from a quantitative perspective and are incorporating ESG into regular team discussions. For instance, members from a variety of teams within Fixed Income Corporate Credit created an "ESG Watch" group in 2018 to discuss ESG factors and aggregate research. The group incorporates ESG-related matters from a variety of perspectives, which has proved to be beneficial for participants.

Corporate (non-financial)

Our approach to reviewing ESG factors for corporate issuers (non-financial) is similar to that for corporate (financial) except less focus is placed on how the ESG factors relate to the credit cycle.

12.3. Additional information.[OPTIONAL]


Top