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Oquendo Capital

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.

Oquendo performs a top-down and bottom-up analysis of each investment in which many factors are taken into consideration in order to provide a good estimate of a company's future financial performance. The range of inputs that is incorporated into our financial models includes traditional variables such as market analysis, demographics, competition, peer review, SWOT analysis, but also ESG elements, which are fully integrated as key qualitative factors of such analysis.

We have developed several tools in order to improve our portfolio ESG performance:

- ESG checklist for all our companies; Our check-list is used by portfolio managers to gauge ESG preparedness of potential investible companies. This tool is also used to keep track of those companies once they are integrated in our portfolio.

- Rating system to evaluate ESG portfolio performance; We established a scoring system to assess the ongoing performance of our portfolio companies. In order to do that, we have established a base line of expected ESG performance to cross against each individual company. This enables us to establish improvement recommendations and follow up on progress.

- ESG materiality matrix; This matrix reflects our exposure to the main ESG risks and opportunities.

- Climate change strategy; we are developing a Climate Change Strategy to fully align our activities with the TCFD recommendations for asset managers.

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

Corporate (non-financial)

Our ESG integration approach is generally applied in all of our investments since we do a quick check list of general ESG factors that the company is already implementing. On of the investment committee tasks is to analyze if the company assess is engaged with ESG factors.

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
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]

Since Oquendo invest primarily in private debt peer group comparison is not always feasible. That´s why we conduct a bottom up approach to integrate ESG in our financial performance assessment.

ESG analysis is embedded in our financial valuation models through two main value-creation channels:
Impact on profitability: we look at ESG factors and their potential role as drivers for profitability. Our framework tries to estimate sustainability´s contribution to enhancing the brand and reputation, improve resource and human capital productivity and increase market opportunities. Impact on risk premia: we factor in ESG performance as a potential driver of risk premia by reducing the likelihood for experiencing shocks that might affect internal operations, disruptions in value chain and legal, ethical and governance crisis.


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
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.

Corporate (non-financial)

Oquendo’s sustainability approach is embraced through-out its whole investment process. Oquendo’s Responsible Investment Policy is the mainstay when integrating environmental, social and governance issues in its making decision processes

In the asset allocation process, Oquendo operates an “exclusions and concerns” dynamic filter. The investment committee has established some exclusion criteria such as alcohol, pornography, gambling and tobacco manufacturing.

During the investment selection stage, Oquendo carries out a broad, all-encompassing materiality assessment. This materiality assessment aims to appraise a potential investment’s performance in a series of ESG criteria, in order to evaluate what ESG risks the investment poses. Moreover, an ESG report is always requested from external advisors including situation assessment, areas of improvement and potential deal breakers.

At the execution stage of the investment process, Oquendo’s team monitors potential ESG controversies during company visits, management interviews, etc. If they identify that a company has a high potential impact or issue in terms of Human Rights, Labour, Environmental or Corruption they carry out a more meticulous due diligence and close monitoring. A management plan will be drawn up to include actions to solve non-severe ESG issues and to improve key metrics. The Investment Committee takes into the account all this information when submitting an investment recommendation. If the results of this process end up with a negative conclussion, the investment will be dismissed.

During the holding period, Oquendo’s strategy is based on the triple action of systematically assessing ESG performance, engaging with its investees and managing eventual controversies. Oquendo carries out a yearly

ESG Portfolio Review in order to collect up-to-date in- formation on ESG risks and its investees’ performance against these. In parallel, Oquendo seeks to engage with its investees to influence company’s board behaviour towards ESG best practices. Quarterly, the CFO reviews the Responsible Investment assessment and make changes if applicable.

12.3. Additional information.[OPTIONAL]


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