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PIMCO

PRI reporting framework 2019

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(C) Implementation: Integration

FI 10. Integration overview

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

PIMCO has incorporated ESG factors in the investment process for decades. Our process emphasizes rigorous analysis of broad secular trends, which are at the core of both global ESG trends and long-term asset returns. PIMCO has developed a robust platform specialized in supporting ESG-focused investment solutions based on our belief that ESG integration is essential to optimizing risk-adjusted returns over the long-term. For this reason, our investment process evaluates ESG risk factors from both the top-down (i.e. macro) and bottom-up (i.e. security specific) across our investment process.

From the top-down, the first and most important step in PIMCO's process is to correctly identify the major long-term themes that will impact the global economy and financial markets. PIMCO believes that such analysis is fundamental to making sound investment decisions. The firm's annual Secular Forums are devoted to identifying and analyzing these longer-term trends and the analysis of ESG-related issues fits directly into that process.

PIMCO blends its macro analysis with detailed bottom-up work. The firm's global credit research team and portfolio managers evaluate ESG-related issues as part of their corporate credit analysis and capital allocation decision-making processes.

PIMCO considers potential risks and opportunities that could affect particular issuers or industries, including those that are ESG-related. To facilitate the systematic integration of ESG risk factors in our analysis and help to monitor ESG related risks, we are continually enhancing our proprietary credit research software with specific ESG related attributes. In addition, we have hosted training sessions for our credit analysts on available ESG data and tools.

Importantly, PIMCO believes that by analyzing ESG risk factors alongside traditional financial risk factors, the firm will have a more complete picture of the risk and return opportunities that will ultimately help PIMCO to deliver better outcomes for its clients.

In addition to the broad process described above, PIMCO has launched a dedicated ESG Platform which targets attractive investment returns and positive impact. The platform builds on PIMCO's core ESG process, but adds a number of sustainability specific features. Exclusions, Evaluation, Engagement.

Firstly, on exclusions the objective is to restrict investment in issuers with business practices that are fundamentally misaligned with sustainability principles. The second feature of evaluation aims to evaluate all issuers from an ESG perspective in addition to fundamentals and emphasize those we consider to be "best-in-class". Thirdly, a proactive and collaborative engagement strategy ensures a continued communication process that seeks to influence issuers to improve their ESG-related business practices. 

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

SSA

PIMCO’s in-depth, bottom-up sovereign risk analysis assesses financial, macroeconomic and ESG variables. In addition to the traditional financial metrics used in sovereign credit analysis, we explicitly score the sovereign on each ESG component. Environmental variables include fossil fuel usage and renewable energy. Examples of social factors include gini coefficient and life expectancy. Governance factors include political stability and rule of law. These are just a few examples of the many factors that are taken into account.

Corporate (financial)

PIMCO's perspective is  that industries have different exposure to respective ESG issues and our sector analysts will determine for each sector a customized framework determining the weight of each pillar.  For Financials, the weight of the Governance pillar is high given the importance specifically for this sector.

Corporate (non-financial)

PIMCO's perspective is  that industries have different exposure to respective ESG issues and our sector analysts will determine for each sector a customized framework determining the weight of each pillar.  

Securitised

With PIMCO’s access to vast loan-level mortgage data, we developed a proprietary responsible investing scoring model for mortgages, based on a scale from 1 (weakest) to 5 (best), consistent with other PIMCO ESG scoring frameworks used for corporate credits, sovereigns and others.

PIMCO’s philosophy of responsible mortgage investing focuses on four objectives:

Support homeownership. Homeownership is a key path to savings and wealth building for many across the world. Connecting borrowers with capital markets is an established and efficient way to ease the path to homeownership. Not all mortgages are used for homeownership; some mortgages are used for vacation home purchases or investment properties.
Increase access for underserved communities. PIMCO believes a focus on underserved communities and lower income borrowers is a way to magnify the social benefit of home lending without sacrificing on loan quality.
Promote responsible lending. It’s critical to focus on ensuring borrowers are not put at added risk of financial distress due to burdensome debt loads.
Discourage predatory lending. A governance-focused way to encourage good lending practices is to penalize or exclude lenders and servicers who engage in practices that are detrimental to homeowners (and in many cases detrimental to bondholders as well).

 

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
Corporate (financial)
Corporate (non-financial)
Securitised
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]

ESG analysis is a standard part of internal credit ratings or assessment


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

Securitised

Environmental

Social

Governance

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

SSA

PIMCO has incorporated ESG factors in the investment process for decades. Our process emphasizes rigorous analysis of broad secular trends, which are at the core of both global ESG trends and long-term asset returns. PIMCO has developed a robust platform specialized in supporting ESG-focused investment solutions based on our belief that ESG integration is essential to optimizing risk-adjusted returns over the long-term. For this reason, our investment process evaluates ESG risk factors from both the top-down (i.e. macro) and bottom-up (i.e. security specific) across our investment process.

From the top-down, the first and most important step in PIMCO's process is to correctly identify the major long-term themes that will impact the global economy and financial markets. PIMCO believes that such analysis is fundamental to making sound investment decisions. The firm's annual Secular Forums are devoted to identifying and analyzing these longer-term trends and the analysis of ESG-related issues fits directly into that process.

PIMCO blends its macro analysis with detailed bottom-up work. The firm's global credit research team and portfolio managers evaluate ESG-related issues as part of their corporate credit analysis and capital allocation decision-making processes.

PIMCO considers potential risks and opportunities that could affect particular issuers or industries, including those that are ESG-related. To facilitate the systematic integration of ESG risk factors in our analysis and help to monitor ESG related risks, we are continually enhancing our proprietary credit research software with specific ESG related attributes. In addition, we have hosted training sessions for our credit analysts on available ESG data and tools.

Importantly, PIMCO believes that by analyzing ESG risk factors alongside traditional financial risk factors, the firm will have a more complete picture of the risk and return opportunities that will ultimately help PIMCO to deliver better outcomes for its clients.

Corporate (financial)

PIMCO has incorporated ESG factors in the investment process for decades. Our process emphasizes rigorous analysis of broad secular trends, which are at the core of both global ESG trends and long-term asset returns. PIMCO has developed a robust platform specialized in supporting ESG-focused investment solutions based on our belief that ESG integration is essential to optimizing risk-adjusted returns over the long-term. For this reason, our investment process evaluates ESG risk factors from both the top-down (i.e. macro) and bottom-up (i.e. security specific) across our investment process.

From the top-down, the first and most important step in PIMCO's process is to correctly identify the major long-term themes that will impact the global economy and financial markets. PIMCO believes that such analysis is fundamental to making sound investment decisions. The firm's annual Secular Forums are devoted to identifying and analyzing these longer-term trends and the analysis of ESG-related issues fits directly into that process.

PIMCO blends its macro analysis with detailed bottom-up work. The firm's global credit research team and portfolio managers evaluate ESG-related issues as part of their corporate credit analysis and capital allocation decision-making processes.

PIMCO considers potential risks and opportunities that could affect particular issuers or industries, including those that are ESG-related. To facilitate the systematic integration of ESG risk factors in our analysis and help to monitor ESG related risks, we are continually enhancing our proprietary credit research software with specific ESG related attributes. In addition, we have hosted training sessions for our credit analysts on available ESG data and tools.

Importantly, PIMCO believes that by analyzing ESG risk factors alongside traditional financial risk factors, the firm will have a more complete picture of the risk and return opportunities that will ultimately help PIMCO to deliver better outcomes for its clients.

Corporate (non-financial)

PIMCO has incorporated ESG factors in the investment process for decades. Our process emphasizes rigorous analysis of broad secular trends, which are at the core of both global ESG trends and long-term asset returns. PIMCO has developed a robust platform specialized in supporting ESG-focused investment solutions based on our belief that ESG integration is essential to optimizing risk-adjusted returns over the long-term. For this reason, our investment process evaluates ESG risk factors from both the top-down (i.e. macro) and bottom-up (i.e. security specific) across our investment process.

From the top-down, the first and most important step in PIMCO's process is to correctly identify the major long-term themes that will impact the global economy and financial markets. PIMCO believes that such analysis is fundamental to making sound investment decisions. The firm's annual Secular Forums are devoted to identifying and analyzing these longer-term trends and the analysis of ESG-related issues fits directly into that process.

PIMCO blends its macro analysis with detailed bottom-up work. The firm's global credit research team and portfolio managers evaluate ESG-related issues as part of their corporate credit analysis and capital allocation decision-making processes.

PIMCO considers  potential risks and opportunities that could affect particular issuers or industries, including those that are ESG-related. To facilitate the systematic integration of ESG risk factors in our analysis and help to monitor ESG related risks, we are continually enhancing our proprietary credit research software with specific ESG related attributes. In addition, we have hosted training sessions for our credit analysts on available ESG data and tools.

Importantly, PIMCO believes that by analyzing ESG risk factors alongside traditional financial risk factors, the firm will have a more complete picture of the risk and return opportunities that will ultimately help PIMCO to deliver better outcomes for its clients.

Securitised

PIMCO has incorporated ESG factors in the investment process for decades. Our process emphasizes rigorous analysis of broad secular trends, which are at the core of both global ESG trends and long-term asset returns. PIMCO has developed a robust platform specialized in supporting ESG-focused investment solutions based on our belief that ESG integration is essential to optimizing risk-adjusted returns over the long-term. For this reason, our investment process evaluates ESG risk factors from both the top-down (i.e. macro) and bottom-up (i.e. security specific) across our investment process.

From the top-down, the first and most important step in PIMCO's process is to correctly identify the major long-term themes that will impact the global economy and financial markets. PIMCO believes that such analysis is fundamental to making sound investment decisions. The firm's annual Secular Forums are devoted to identifying and analyzing these longer-term trends and the analysis of ESG-related issues fits directly into that process.

PIMCO blends its macro analysis with detailed bottom-up work. The firm's global credit research team and portfolio managers evaluate ESG-related issues as part of their corporate credit analysis and capital allocation decision-making processes.

PIMCO considers potential risks and opportunities that could affect particular issuers or industries, including those that are ESG-related. To facilitate the systematic integration of ESG risk factors in our analysis and help to monitor ESG related risks, we are continually enhancing our proprietary credit research software with specific ESG related attributes. In addition, we have hosted training sessions for our credit analysts on available ESG data and tools.

Importantly, PIMCO believes that by analyzing ESG risk factors alongside traditional financial risk factors, the firm will have a more complete picture of the risk and return opportunities that will ultimately help PIMCO to deliver better outcomes for its clients.

12.3. Additional information.[OPTIONAL]


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