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Vancity 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
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 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.

We apply a screening strategy, an integration strategy and a Green bond purchase strategy. We exclude bonds from fossil fuel producers and distributers. We utilize ESG screening and monitoring for corporate issuers and government bonds. We purchase certified Green bonds as a component of the bond portfolio to give us exposure to sustainability strategies.

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]


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

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

We invest in companies that articulate and follow a governance process that ensures an involved board with clear accountabilities and strong risk management practices. Whether as a function of internal operations or their third-party suppliers, we expect the companies we invest in to take decisive corrective action where issues occur regarding our basic investment principles.                                               

We apply 26 indicators in assessing how well companies meet our ESG investment principles.

For government bonds we use our in-house research team to determine eligibility for government issuers. We avoid investing in bonds associated with nuclear energy, fossil fuel production and distribution, and military weapons. We avoid investing in bonds of governments associated with human rights violations or corruption.

04.3. Additional information. [Optional]

We use the International Capital Market Association’s (ICMA) Green Bond Principles and Social Bond Principles when selecting green and social bonds including the four components below:

1.Use of proceeds – Declaration of project(s), which provide clear environmental (social) benefits
2.Process for project evaluation and selection – Define environmental sustainability (social) objectives and how specified projects contribute
3.Management of proceeds – Proper accounting and isolation of proceeds
4.Reporting – Annual reporting on projects and amounts allocated


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]


(B) Implementation: Thematic

FI 07. Thematic investing - overview (Private)


FI 08. Thematic investing - themed bond processes

08.1. Indicate whether you encourage transparency and disclosure relating to the issuance of themed bonds as per the Green Bonds Principles, Social Bond Principles, or Sustainability Bond Guidelines..

08.2. Describe the actions you take when issuers do not disburse bond proceeds as described in the offering documents.

We have not encountered this to date, however, we would conduct an orderly divestment, similar to our action following a merger or acquisition in which the issuers has become involved in an excluded activity.

08.3. Additional information. [Optional]


FI 09. Thematic investing - assessing impact

09.1. Indicate how you assess the environmental or social impact of your thematic investments.

09.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

Before investing, VCIM develops a complete picture of issuer-specific strengths, weaknesses, opportunities or threats by evaluating policies, performance and practices regarding the environment, social responsibility and corporate governance. This thorough ESG review is combined with rigorous financial analysis to determine whether the issuer's securities are appropriate for the funds managed on behalf of investors. The ESG Team and Financial Team work in the same physical environment  and participate in the decision-making process for selecting equities and fixed income.  Through active discussions of the analytical findings, portfolio needs and materiality of risks we integrate ESG and financial information to make a determination of eligibility.

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

SSA

We use a combination of positive and negative screening to choose companies for portfolios we manage. Our ESG evaluation includes an analysis of revenue from products or processes that we have determined are unsustainable: tobacco, nuclear power, military armaments, adult entertainment and gaming. We evaluate the company for strengths or weaknesses according to 26 indicators, under the seven criteria: corporate governance, environmental performance and policy, diversity, community relations, labour relations, human rights and exposure socially or environmentally beneficial products or services. Companies that are found to have significant weaknesses in aggregate are deemed ineligible for investment   

Corporate (financial)

We use a combination of positive and negative screening to choose companies for portfolios we manage. Our ESG evaluation includes an analysis of revenue from products or processes that we have determined are unsustainable: tobacco, nuclear power, military armaments, adult entertainment and gaming. We evaluate the company for strengths or weaknesses according to 26 indicators, under the seven criteria: corporate governance, environmental performance and policy, diversity, community relations, labour relations, human rights and exposure socially or environmentally beneficial products or services. Companies that are found to have significant weaknesses in aggregate are deemed ineligible for investment                                         

 

 

Corporate (non-financial)

We use a combination of positive and negative screening to choose companies for portfolios we manage. Our ESG evaluation includes an analysis of revenue from products or processes that we have determined are unsustainable: tobacco, nuclear power, military armaments, adult entertainment and gaming. We evaluate the company for strengths or weaknesses according to 26 indicators, under the seven criteria: corporate governance, environmental performance and policy, diversity, community relations, labour relations, human rights and exposure socially or environmentally beneficial products or services. Companies that are found to have significant weaknesses in aggregate are deemed ineligible for investment

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

We use a combination of positive and negative screening to choose companies for portfolios we manage. Our ESG evaluation includes an analysis of revenue from products or processes that we have determined are unsustainable: tobacco, nuclear power, military armaments, adult entertainment and gaming. We evaluate the company for strengths or weaknesses according to 25 indicators, under the seven criteria: corporate governance, environmental performance and policy, diversity, community relations, labour relations, human rights and exposure socially or environmentally beneficial products or services. Companies that are found to have significant weaknesses in aggregate are deemed ineligible for investment

Corporate (financial)

We use a combination of positive and negative screening to choose companies for portfolios we manage. Our ESG evaluation includes an analysis of revenue from products or processes that we have determined are unsustainable: tobacco, nuclear power, military armaments, adult entertainment and gaming. We evaluate the company for strengths or weaknesses according to 25 indicators, under the seven criteria: corporate governance, environmental performance and policy, diversity, community relations, labour relations, human rights and exposure socially or environmentally beneficial products or services. Companies that are found to have significant weaknesses in aggregate are deemed ineligible for investment

Corporate (non-financial)

We use a combination of positive and negative screening to choose companies for portfolios we manage. Our ESG evaluation includes an analysis of revenue from products or processes that we have determined are unsustainable: tobacco, nuclear power, military armaments, adult entertainment and gaming. We evaluate the company for strengths or weaknesses according to 25 indicators, under the seven criteria: corporate governance, environmental performance and policy, diversity, community relations, labour relations, human rights and exposure socially or environmentally beneficial products or services. Companies that are found to have significant weaknesses in aggregate are deemed ineligible for investment

12.3. Additional information.[OPTIONAL]

Before investing, VCIM develops a complete picture of issuer-specific strengths, weaknesses, opportunities or threats by evaluating policies, performance and practices regarding the environment, social responsibility and corporate governance. This thorough ESG review is combined with rigorous financial analysis to determine whether the issuer's securities are appropriate for the funds managed on behalf of investors. The ESG Team and Financial Team work in the same physical environment  and participate in the decision-making process for selecting equities and fixed income.  Through active discussions of the analytical findings, portfolio needs and materiality of risks we integrate ESG and financial information to make a determination of eligibility.

We conduct on-going monitoring of the portfolio holdings and, when new information becomes available we integrate it into our investment process and make a determination as whether or not the ESG risk is material. We then determine if engagement or divestment is required.


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