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Hwabao WP Fund Management Co., Ltd

PRI reporting framework 2020

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
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%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

Integration strategy can take ESG factors into consideration in the existing credit rating framework of bond issuers, which is conducive to the establishment of a unified credit risk assessment system, rather than separate evaluation of traditional credit risk and ESG risk.

Negative/ exclusionary screening is more suitable for the centralized screening of the same type of risks, which are usually sudden, dynamic, and concentrated in a certain type of issuer. For example, credit risks of private enterprises increase when risk appetite declines, issuers in heavily polluted areas face more severe operating pressure when environmental regulation is strengthened, and small financial enterprises face higher liquidity risks when financial market risks occur. Negative/ exclusionary screening help to compare the risk levels of different issuers facing the same problem and to adjust the list of evasive targets according to the change in risk level.

In general, integration strategy establishes a unified and relatively stable risk assessment system, and screening strategy has faster ability and flexibility to deal with sudden risks.

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]


(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

When a certain type of risk occurs in the market or a certain type of risk is expected to rise, we will analyze the impact of such risk on the debt solvency of the issuer and bond price. On this basis, we establish quantifiable indicators which have high correlation with such risks,and set a series of thresholds. When the indicators over the threshold, we believe that the issuer's debt repayment risk is high, or the bond price will fluctuate.

The criteria are normally reviewed annually, but when unexpected risks arise in the market, screening criteria will be temporarily added and the frequency of review will increases. 

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process (Not Completed)


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

06.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

We believe that ESG factors has a certain correlation with the performance of financial indicators of enterprises .On the basis of traditional internal credit rating framework, the influence of ESG factors on credit risk is identified and evaluated.

For industrial enterprises, ESG factors will directly or indirectly affect production costs. Enterprises with advantages of energy conservation and safe production will show higher gross profit rate and relatively healthy cash flow performance through higher production efficiency and lower cost and loss.We can get more reliable conclusions by combining ESG performance with corporate financial indicators.

Corporate governance factors  (such as the management change, affiliate transaction, guaranty, etc.) will bring new potential contingent liabilities and  negative effect to the financial sustainability. We incorporate these factors into our financial analysis, especially in the study of accounting accounts that may be prone to sugar-coating, and lower the credit scores for companies that are exposed to this risk.

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

SSA

We focus on ESG factors: for example, local government debt ratio, growth momentum, industrial structure (whether high pollution, overcapacity), government governance efficiency, population structure, per capita disposable income, social welfare , environmental protection, mutual insurance of regional enterprises, etc.

Corporate (financial)

Key ESG factors: enterprise nature (whether listed or state-owned), equity structure, corporate governance, affiliate transaction, business strategy, management stability, risk management level, employee compensation and benefits, government support, inclusive finance, green credit, etc.

Corporate (non-financial)

Key ESG factors:enterprise nature (whether listed or state-owned), actual control, corporate governance, affiliate transaction, external guarantee, industrial policy,  energy consumption, waste emission, employee compensation and welfare, and negative news, etc.

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)
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 in Additional Information

11.2. Additional information [OPTIONAL]


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

We incorporate ESG factors into a traditional credit analysis framework.For SSA investment, we focus on ESG factors: for example, local government debt ratio, growth momentum, industrial structure , government governance efficiency, population structure, per capita disposable income, social welfare security, environmental protection, etc.Governance, the most important of the three, is directly linked to the government's ability and repayment willingness.

Corporate (financial)

Corporate governance is still the most important aspect. In addition, financial institutions also play an Important role in assuming social responsibilities (e.g., inclusive finance, green finance, financial stability, etc.).

Key ESG factors:for example,enterprise nature (whether listed or state-owned), equity structure, corporate governance, affiliate transaction, business strategy, management stability, risk management level, employee compensation and benefits, government support, inclusive finance, green credit, etc.

Corporate (non-financial)

In the study of industrial and commercial enterprises, we focus on: for example, enterprise nature (whether listed or state-owned), actual control, corporate governance, affiliate transaction, external guarantee, industrial policy,  energy consumption, waste emission, employee compensation and welfare, and negative news, etc

We still take the level of corporate governance as an important factor to consider, while for private enterprises, the actual controller of the enterpris often plays a key role in the development of enterprises.

12.3. Additional information.[OPTIONAL]


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