Our approach to engagement on a sovereign level is to directly discuss difficult issues with government and central bank officials. During these discussions, our portfolio managers will voice their concerns or opinions directly to people who have the capacity to make meaningful changes, with their savings and we need to do the proper due diligence to ensure that we are lending to governments who have and will continue to govern in a responsible, credible, transparent and market-friendly manner. We do not have an explicit environmental or social policy in this regard, although our overall approach and principles are embedded in our attached stewardship statement, principles and approach.
Apart from the direct discussions with policy and lawmakers, our investment process offers another layer of thorough due diligence. We view investing in emerging market government debt as supporting the development of the countries we invest in. The development of a local currency bond market (in which we have been a pioneer investor) is a very positive development for a country; it underpins economic growth through the development of the financial market. More specifically an investable, liquid local bond yield particularly in relation to controversial weapons or governance issues and unsustainable environmental practices. This is an extremely fortunate position to have and we do not take it lightly. Investors entrust us curve allows companies to borrow at less onerous rates for longer terms directly from the market (as opposed to short-dated cash borrowing from banks). Banks can offer long-term mortgage products and hedge their risk whilst people get to own homes. Lastly, insurers can offer longer term annuity/life products that wouldn't be available otherwise.
We look to promote ESG principles through our engagement process. Our approach to engagement with corporate issuers includes requesting information to understand company policies and activities. We ask for improved disclosure share insights and concerns with management to help them understand why we will not invest/disinvest if they have material weaknesses that they are not addressing. The point of our engagement is to improve a company’s overall credit quality and structural resilience which in turn will directly determine the discount factor or cost of debt. We also work with market participants and global organisations to progress ESG adoption across the companies we invest in and improve visibility of ESG across the financial industry, working with index providers, charities and specialist agencies..
Finally in addition to engagement with companies, we also engage with government officials and regulators. Our emerging market sovereign team has its own program of engagement with government officials and regulators, which have partnered with the efforts of the EM corporate team