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Artemis Investment Management

PRI reporting framework 2020

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income

ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

Indicate (1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and (2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.
SSA
0 Screening alone
0 Thematic alone
100 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
100 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
100 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

As a firm, we believe stewardship activities contribute to better performing companies and hence returns for our clients. Fund managers take the lead on stewardship, it is part of their investment processes which comprises of idea generation, research and portfolio construction.

We have a range of separate and distinctive fixed income strategies but the integration of financially material ESG factors is the main approach for ESG incorporation as this leads in our view to a more holistic risk assessment of investments and hence better returns for clients. Assessment of materiality differs due to factors including holding period, portfolio positioning and construction, and risk tolerance all of which have an impact on how information is used.

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

03.2. Describe how your ESG information or analysis is shared among your investment team.

03.3. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

10.1. Describe your approach to integrating ESG into traditional financial analysis.

As a firm, we believe stewardship activities contribute to better performing companies and hence returns for our clients. Fund managers take the lead on stewardship, it is part of their investment processes which comprises of idea generation, research and portfolio construction. Whilst individual strategies are distinctive, views and thoughts are shared across the various investment teams. We use a number of materiality frameworks and research providers to guide our ESG risk and opportunity assessment including SASB, MSCI ESG, Sustainalytics, TruValue Labs, and sell-side research. These sources of information provide valuable analysis and insight but they are just one set of inputs into our own investment evaluations. They supplement our own research and engagement with companies. Different perspectives are helpful, but it is the role of our fund managers to assimilate information from multiple sources and come to a decision. Assessment of materiality differs due to factors including fundamental analysis. holding period, portfolio positioning and construction, and risk tolerance all of which have an impact on how information is used.

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

SSA

The credit quality of most SSAs means that we tend to focus on ESG implications for market technicals, rather than fundamentals.

Corporate (financial)

Most financial firms will have diverse and complex portfolio of underlying assets. Governance is of paramount importance both in terms of understanding the risks involved in the management of these assets, and also in ensuring that the relevant corporate is taking sufficient care of ESG factors within their own investments and operations. Given that most financials bonds are Investment Grade, we tend to focus more on the potential impact of ESG factors upon market technicals rather than fundamentals. However, should a given asset exposure within a financial firm be particularly pronounced, we will consider the potential impact within our fundamental analysis on the credit.

Corporate (non-financial)

Within Investment Grade non-financial corporates the consideration of ESG factors upon market technicals is of greater importance, given the higher credit quality of issuers means that they will be better able to deal with fundamental disruption through ESG. Having said this, longer-dated issuance must take into account greater fundamental risks from ESG developments given the longer time horizon. Within High Yield non-financial corporates the potential impact of ESF factors on fundamental performance is of greater importance, given the more precarious financial situations of the credits.

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

Given the diversified funding nature of most SSAs, we tend to focus more on governance and social factors rather than environmental issues.

Corporate (financial)

As with SSAs, most financial firms will have diverse portfolios of underlying assets. Governance is of paramount importance both in terms of understanding the risks involved in the management of these assets, and also in ensuring that the relevant corporate is taking sufficient care of ESG factors within their own investments and operations.

Corporate (non-financial)

Individual non-financial corporates will have their own priorities as far as ESG analysis goes. Much of this will be dependent upon industries. For instance, an auto company may require a focus on environmental issues; a consumer products company may require a focus on social issues; and a heavily regulated company such as a pharmaceutical may require a focus on governance. We broadly believe that, while governance is important for all companies given the contractual nature of our investment within them, for Investment Grade companies it is of paramount importance.

12.3. Additional information.[OPTIONAL]


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