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Fulcrum Asset Management LLP

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
0 Screening alone
0 Thematic alone
0 Integration alone
100 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.

For our SSA Fixed Income exposure we consider ESG risks as part of the country analysis. 

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research (Private)


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]

We receive ESG risk data from Sustainalytics and we have reviewed their methodology and are confident their research is comprehensive. We use the ESG country risk ratings to supplement our country research. We approach all this data critically and use it in conjunction with our own research and analysis.


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

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

Negative and exclusionary screening, such as sanctions, would apply firm wide where as positive screens are strategy specific. 

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process (Private)


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?
Positive/best-in-class screening

06.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

RI could and should be complementary to traditional investment selection processes embracing their alpha-generating and risk diversifying properties.

Within the Fixed Income narrative of Fulcrum’s top-down investment philosophy, the portfolio manager actively manages duration, fx, credit, yield curve and cross-country exposures and their respective risks. The assessment of ESG risk and opportunity profiles thus comes as a natural component of the continuous in-depth macro strategic analysis when risk allocation decisions arise.

At the epicentre of the investment selection process one would find conviction and dispersion (especially in an absolute return context) that goes hand in hand with market volatility and investment horizon alongside market conditions (depth, liquidity, bid/offer spread etc). ESG risks will be revealing themselves and assessed appropriately when defining trade conviction, as a reflection of the risk and reward profile, under different holding periods.

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

SSA

ESG has been an implicit part of Fixed Income’s investment process and we are determined to continuously evolve in all aspects of our selection process, including making a more explicit identification of ESG risks and opportunities with knock-on effects on asset pricing and risk. In our toolkit, we aim to introduce a simple ESG, in-house, evaluation structure that will be further enhanced by the use of market-standard ESG rating metrics.

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
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]

*SSA only


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

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

SSA

ESG risks and opportunities are considered alongside other risk-metrics as part of our risk analysis. 

12.3. Additional information.[OPTIONAL]


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