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Fidelity International

PRI reporting framework 2020

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

(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)
Securitised
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

See below - FI 04.3

04.3. Additional information. [Optional]

Sustainable Family

 

Negative Screening/Exclusion

The Sustainable Family Funds adhere to Fidelity’s Firm Wide Exclusion List and as well as an additional Sustainable Family Exclusion List.

 

Firm wide we adopt a principles-based approach to ESG matters and as part of this we place companies which we regard as unsuitable investments on an Exclusion List. When deciding on whether or not to exclude a company we are guided by international conventions particularly the Convention on Cluster Munitions, the International Convention on the Prohibition of the use of, stockpiling, production and transfer of Anti-Personnel Mines, guidance from The United Nations, The World Bank and other global regulations which uphold ESG principles.

 

In addition, for Funds, included in the Sustainable Family, we exclude:

a) Controversial weapon manufacturers (nuclear, biological, chemical, non-detectable fragment and blinding lasers).

b)Tobacco production companies

c)Companies which violate the 10 principles of UN Global Compact

d)Manufacturers of Semi-Automatic Weapons

An internal advisory group with authority to determine and govern the application of these exclusions will meet every six months to review the exclusions list.

 

Best In Class Approach

The Sustainable Family funds follow a best-in-class approach. The investment universe is driven by selecting companies with strong and improving ESG characteristics, whilst aiming to achieve compelling long-term financial performance and outperformance of its benchmarks. The investment process actively seeks to select companies that are high ESG performers relative to peers and with a target to outperform its benchmarks. The Sustainable Family funds must invest at least 70% of portfolio in securities with strong ESG characteristics and up to 30% of portfolio with low(er) but improving ESG characteristics.

We use a waterfall approach to monitor the sustainable characteristics and compliancy with the framework for the Sustainable Family fund range. MSCI is the primary source for corporates and backfilled by Fidelity Sustainability Ratings, if they don’t have a rating for a security. A security is deemed to have good sustainable characteristics if its rating is AAA - BBB from MSCI or A - C from Fidelity.  MSCI ESG Sovereign Ratings is used for Sovereign securities and good sustainable characteristic requires a rating between AAA – BB”.

 

Currently 2 of our Fixed Income Products are part of the Sustainable Family: (i) Sustainable Reduced Carbon Bond Fund (ii) Sustainable Strategic Bond Fund


FI 05. Examples of ESG factors in screening process (Private)


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
Positive/best-in-class screening
Norms-based screening

06.2. Additional information. [Optional]

As highlighted in the previous section, our Sustainable Family of Funds need to comply with a stringent set of requirements both in terms of Negative Screening and Best in Class approach. Please see below:

 

Negative:

In the Sustainable Family, we exclude:

a) Controversial weapon manufacturers (nuclear, biological, chemical, non-detectable fragment and blinding lasers). (MSCI Data)

b)Tobacco production companies (MSCI Data)

c)Companies which violate the 10 principles of UN Global Compact (ISS Ethix Data based on violations of United Nations Global Compact principles, which cover the full E, S and G spectrum)

d)Manufacturers of Semi-Automatic Weapons (MSCI Data)

An internal advisory group (Sustainable Family Exclusion Committee) with authority to determine and govern the application of these exclusions will meet every six months to review the exclusions list.

 

Positive:

The Sustainable Family funds must invest at least 70% of portfolio in securities with strong ESG characteristics and up to 30% of portfolio with low(er) but improving ESG characteristics.

We use a waterfall approach to monitor the sustainable characteristics and compliancy with the framework for the Sustainable Family fund range. MSCI is the primary source for corporates and backfilled by Fidelity Sustainability Ratings, if they don’t have a rating for a security. A security is deemed to have good sustainable characteristics if its rating is AAA - BBB from MSCI or A - C from Fidelity.  MSCI ESG Sovereign Ratings is used for Sovereign securities and good sustainable characteristic requires a rating between AAA – BB”.

 

 

The Sustainable Investing Team reviews the data providers used for screening (negative and positive) at least once a year and this data is onboarded within Fidelity Internal Systems, including pre-trade compliance and Portfolio Monitoring so as to make sure that we are always compliant with the framework of the Sustainable Family.

Raw Norms based screening data is not fully onboarded on our technology systems but we update the list of violators on a bi-annual basis and the list of companies  is then fed into our compliance and trading systems so as to prevent any breach.


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