As a first step, the negative screening applies the same to equity and fixed income investments. For SSAs, we have a different set of negative screening that we have already explained.
For the fixed income analysis, the next step is to gather ESG data. Given that we have limited resources, we obtain it from an external research provider (MSCI ESG Research) for corporates and financial institutions. For SSAs, we get it from different public sources: stats from Treasury of different countries, public domains such as Human Development Index, International Transparency Corruption Index, etc.
This year, we have additional sources of information such as the specialized sell-side reports on ESG issues from two top broker entities such as JPM and Kepler. They include extensive ESG research of how sovereigns are working on ESG issues and the risks that can arise from unbalanced budgets, exposure to fossil fuels income, social unrest, etc. together with significant analysis on sectors and specific corporate and financial institutions, such as energy transition issues, physical risks, risks of strikes from their labour, etc.
Those ESG variables are integrated in each analyst´s research and are explicitly discussed with the portfolio managers. We do not have an automated algorithm that links ESG metrics with spreads, but deterioration of ESG profile of an issuer is linked to higher yields that are needed for that issue to be included in the portfolio or it might trigger a sale. We must remind that the expert groups that we talked about in the Equity module also are available for contrast for fixed income analysts and portfolio managers in order to improve the credit analysis and what duration risk we might want to take.
One thing that we continue to believe it is important is that there is a constant dialogue between the equity and fixed income analysts in relation to ESG in order to be more efficient.
In relation to green, social an sustainable bonds, we pay attention to the ESG quality of the issuer and the coherence of the business strategy with the environmental and social parameters.