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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 » (C) Implementation: Integration

(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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