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Schroders

PRI reporting framework 2019

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » Implementation processes

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%
Corporate (financial)
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%
Corporate (non-financial)
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%
Securitised
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.

Our main objective for integrating ESG analysis is to enhance returns and protect value for our clients.

Credit: ESG issues can have a material influence on the sustainability of issuer cash-flows and therefore the risk to bondholders.  We seek to identify and analyse multiple ‘real-world’ themes in a holistic, forward-looking way, and to understand corporate business models to identify how issuers are managing change.  

Sovereigns: Given rapid social and environmental change, it is vital to assess countries' abilities to adapt and thrive as these forces re-shape industries, governments, growth and inflation prospects. We believe ESG integration helps with capital preservation and generating alpha through better country allocation.

Munis: ESG risks are analysed as part of overall security selection, and views incorporated into grades and recommendations.

Securitised: We believe an in-depth understanding of collateral cash flow and structure is the foundation of generating returns in a market where size and complexity leads to exploitable inefficiency. The consideration of ESG factors complements the assessment of the quality of the collateral and the sustainability of the cash flows.

We’re committed to avoiding any companies deriving revenue from cluster munitions or anti-personnel mines. We also manage screened mandates based on client-specific criteria.

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
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
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

          Unstructured data
        

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.

Our fixed income teams draw upon our ESG specialists’ thematic research, 3P ESG research (e.g. MSCI, EiRIS) and other sources (sell-side research, industry bodies, think tanks, NGOs and academics).  All 3P ESG research we buy is accessible on a central research platform.  We have invested substantial resources to build proprietary tools and databases to ensure that raw ESG data is structured into accessible tools for analysts and fund managers.  The fixed income teams also have regular updates with ESG specialists and ask them to investigate specific issues.

02.4. Additional information. [Optional]

Credit: Each issuer research initiation and credit recommendation update contains a specific assessment of ESG risks. This process is ever-evolving with the development of Schroders’ proprietary ESG tool Context. This framework results in an issuer report on ESG factors identified as most material by the analyst.   Data is sourced directly via annual reports, company websites, and company engagement; 3P ESG data as well as more unconventional data such as Glassdoor and proprietary scores provided by our Sustainable Investment team e.g. SustainEx.

Sovereign: Analysis covers country relevant ESG issues such as corruption and supply chain practices. By assessing the ESG risks and opportunities that have historically driven growth, as well as those that may be influential in the future, it aims to provide investors with a long-term view of countries’ GDP growth as well as an indication as to whether the market is pricing in country sustainability factors across various asset classes.  We draw on a number of databases, in particular those run by NGOs or inter government agencies to source data. 


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

specify description

          We substantiate the conclusions we form from our company engagements with the conclusions reached by our equity colleagues.
        

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

          Regular meetings of investors with the Sustainable Investment team, as well as the monthly Sustainability investor group meeting
        

03.3. Additional information. [Optional]

Thematic research into ESG issues is another important part of how our ESG specialists add value to the investment process. The team is tasked with identifying poorly understood issues that can fall between the cracks of sector coverage or get overlooked as researchers focus on producing accurate medium-term company or country forecasts.

Credit: Much of the analysis of ESG risks is done by credit researchers at the initiation of a company's coverage. Ongoing identification of emerging ESG issues that can impact the credit is also important as credit researchers assess a company's track record and outlook on this front. This often is the result of collaboration between ESG specialists and credit researchers to derive a better understanding of changing market dynamics. More recently, the team has been utilising a proprietary ESG tool, CONTEXT, which provides a systematic framework for analysing a company’s relationship with its stakeholders and the sustainability of its business model.

Sovereign: Systematic quantitative analysis of social and governance factors are augmented by detailed on-the-ground visits. These will encompass a wide range of engagements with policymakers, politicians and NGOs to assess the short and long-term prospects for an issuer.


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