Our investment process begins with the senior investment team assessing the global market environment. This includes the review of any ESG issues by our credit research analysts or global economists. The majority of our ESG analysis would be conducted at this stage. While we conduct our own ESG research, our credit research team and economists also utilise third-party ESG research models.
With respect to corporate credit research, we have a five-step process which integrates ESG factors into our fundamental opinions.
1. Identifying material ESG issues that may have an impact on an issuer on an issuer and documenting those items into our internal research database, Aladdin® Research. This enables our analysts to monitor these issues over time and provide updates to the companies’ progress in addressing them.
2. Our analysts will engage with issuers when we believe the potential ESG items highlighted are material. The objective here is to get a better understanding of how management will address these issues. Our opinion of management’s credibility on ESG issues helps to inform our fundamental credit opinion.
3. Our analysts will document all material ESG issuers in a specific section within our in-depth credit research reports. Here, the analyst highlights the issues and explains how the issues are considered with respect to their fundamental credit opinions.
4. Our newest step is the pending launch of our internal proprietary ESG ratings. After considering potential ESG issues and our engagement with management, our analysts will be assigning an internal ESG ratings. We expect to launch these internal ratings later in 2020.
5. Our final step integrates the analysts and the portfolio managers. The portfolio managers maintain ESG relative value journals which capture all discussions between portfolio managers and analysts regarding ESG issues and our relative value opinion on those issues.
The senior portfolio managers then construct the portfolio along with the team of sector specialists and analysts. The portfolio management team reviews the research before deciding whether or not the issuer has any material ESG concerns. The portfolio managers also ensure that the issuer would not violate any guidelines of the portfolio (including any SRI screens or restrictions).
Portfolio managers and risk managers oversee risk positioning daily, which includes the review of any material ESG issues that would either cause the portfolio to exceed its risk budget or result in a violation of ESG restrictions.
ESG Broad Factors for Consideration
• Overall Environmental Policies
• Greenhouse Gas (GHG) Reduction Program, Reporting & Trend
• Water and Wastewater Management Programs
• Energy Efficiency and Renewable Energy Programs
• Waste & Hazardous Materials Program
• Environmental Fines & Penalties
• Human Rights Policies
• Working Conditions & Employee Incidents
• Supply Chain Monitoring
• Diversity and Inclusion Programmes
• Data Security & Privacy Breaches
• Product Safety and Consumer Protections
• Board: Independence, Diversity, Transparency, Experience, Leadership
• Global Compact Signatory
• ESG Reporting: Disclosure, Performance Targets
• Financial Reporting: Disclosure, Timeliness, Transparency
• Incidents: Business Ethics, Governance, Accounting, Tax, Bribery, etc.