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JK Capital Management Limited

PRI reporting framework 2020

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

(C) Implementation: Integration

FI 10. Integration overview

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

JK Capital’s idea of ESG integration follows the concept introduced by the UN PRI and defined as “the explicit and systematic inclusion of ESG factors in investment analysis and investment decisions.” It is a holistic approach to investment analysis, where material factors—ESG factors and traditional business and financial analysis factors—are identified and assessed to form an investment decision. 

For all fixed income investments integrated into our portfolios a due diligence process is carried out ahead of investment. Traditionally this follows the framework of analysis of business risk, financial risk and affiliation risk of the bond issuer. Affiliation Risk analysis includes a specific assessment of management and ownership profile which requires a rigorous study of the corporate governance track record of the management. Given bond investments tend to be highly sensitive to governance risk, this forms one of the key pillars of the investment decision. Integrating the JKC ESG framework we have overlaid environmental and social responsibility factors into our affiliation risk assessment as well. It should also be noted that while some investment exclusions or sector weightings are incorporated, this must be balanced against a fiduciary duty to maintain high diversification of the portfolio to reduce any concentrated credit exposure.  

 

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

SSA

We consider our ESG integration approach adapted to our investments into SSA because not only we integrate into our analysis third party ESG research provided by brokers, rating agencies and independent data sources such as “Debtwire”, which carries out background checks of key management bodies, but we also focus additionally on co-operation with supranational risk assessment bodies such as the financial action task force (FATF) on money laundering and tax evasion.  

Corporate (financial)

We consider our ESG integration approach adapted to our investments into Corporate (Financial) because during our analysis we assess not only the historical ESG track record for the purpose of potential investment exclusions but also efforts carried out by management to improve their ESG score with an attempt to reward improving managements. 

For both banks and non-financial corporates, analysis is achieved through a combination of reviewing corporate/bank publications such as annual reports, new issue presentations and website disclosures, direct questioning to management and a review of third party ESG research provided by brokers, rating agencies and independent data sources such as “Debtwire”, which carries out background checks of key corporate managements.

Corporate (non-financial)

We consider our ESG integration approach adapted to our investments into Corporate (non-Financial) because during our analysis we assess not only the historical ESG track record for the purpose of potential investment exclusions but also efforts carried out by management to improve their ESG score with an attempt to reward improving managements. 

For both banks and non-financial corporates, analysis is achieved through a combination of reviewing corporate/bank publications such as annual reports, new issue presentations and website disclosures, direct questioning to management and a review of third party ESG research provided by brokers, rating agencies and independent data sources such as “Debtwire”, which carries out background checks of key corporate managements.

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

For all fixed income investments integrated into our portfolios a due diligence process is carried out ahead of investment. Traditionally this follows the framework of analysis of business risk, financial risk and affiliation risk of the bond issuer. By analyzing publications from Sell-side analysts, rating agencies, independent data sources, Supranational Risk Assessment bodies such as the Financial Action Task Force we can have a fair view on E, S and G indicators per SSA issuer. With an increasing market sensitivity to ESG risks, this analysis (for example exposure to changes in environmental regulation) is also incorporated in our business risk assessment as well. 

It should also be noted that while some investment exclusions or sector weightings are incorporated, this must be balanced against a fiduciary duty to maintain high diversification of the portfolio to reduce any concentrated credit exposure. 

Corporate (financial)

For all fixed income investments integrated into our portfolios a due diligence process is carried out ahead of investment. Traditionally this follows the framework of analysis of business risk, financial risk and affiliation risk of the bond issuer. By analyzing publications from Sell-side analysts, rating agencies, independent data sources, corporate publications, new issue presentations, website disclosures and Supranational Risk Assessment bodies such as the Financial Action Task Force we can have a fair view on E, S and G indicators per Corporate (Financial) issuer. With an increasing market sensitivity to ESG risks, this analysis (for example exposure to changes in environmental regulation) is also incorporated in our business risk assessment as well. 

It should also be noted that while some investment exclusions or sector weightings are incorporated, this must be balanced against a fiduciary duty to maintain high diversification of the portfolio to reduce any concentrated credit exposure. 

Corporate (non-financial)

For all fixed income investments integrated into our portfolios a due diligence process is carried out ahead of investment. Traditionally this follows the framework of analysis of business risk, financial risk and affiliation risk of the bond issuer. By analyzing publications from Sell-side analysts, rating agencies, independent data sources, corporate publications, new issue presentations, website disclosures and Supranational Risk Assessment bodies such as the Financial Action Task Force we can have a fair view on E, S and G indicators per Corporate (non-Financial) issuer. With an increasing market sensitivity to ESG risks, this analysis (for example exposure to changes in environmental regulation) is also incorporated in our business risk assessment as well. 

It should also be noted that while some investment exclusions or sector weightings are incorporated, this must be balanced against a fiduciary duty to maintain high diversification of the portfolio to reduce any concentrated credit exposure. 

12.3. Additional information.[OPTIONAL]


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