Environmental factors are systematically researched and reviewed at the issuer-specific level for non-financial corporate credit investments, particularly within the natural resource extraction industry. Analysis of the power generation mix of power utility corporates with particular sensitivity to coal-based generation is performed across strategies.
Social factors are occasionally researched and reviewed, such as for assessing how certain industries or company policies may negatively affect public trust and perception. For developed market and particularly Japanese manufactures and retail corporates, the working conditions, labor relations, and compliance with standards and regulations domestically and in foreign operations is a feature of the credit analysis.
Governance factors are systematically researched and reviewed, for example in assessing the composition of company boards for independence, determining layers of ownership and government involvement as it relates to protecting investor rights and transparency, identifying "key person risk" and systematic regulatory compliance, etc.
Certain Corporate Non-Financial investment strategies also use an in-house developed corporate ESG scoring framework to systematically assess companies on a range of industry-specific, credit-material, and downside risk-based sustainability issues. Raw ESG scores as data for a range of ESG risk factors are sourced from a third party research provider, then aggregated into Corporate Credit ESG scores based on a weighting formula of industry-specific materiality developed in-house. For example, scores for electric utilities have a high weighting to Environmental factors and include Emissions and Water use, while Banks scores are entirely composed of Social and Governance factors like Green financing, Stranded Asset Risk, Data security, and Product Safety/Use-Phase Impact on society. Specific factor weights are determined by a formula based on our determination of corporate credit materiality for each industry. We believe that the use of systematic, quantitative ESG analysis provides a consistent and objective point of reference for assessing companies from a credit investor perspective, and is an efficient means of identifying areas of risk for further qualitative ESG analysis by credit analysts. We use this data for security selection and pricing analysis (ie to determine whether ESG risks are fully reflected in market spreads), portfolio construction and ESG risk monitoring.