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FIM Asset Management

PRI reporting framework 2020

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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
100 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
0 Integration alone
80 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
20 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
80 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
20 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 consider responsible investing as a part of our fiduciary duty. Responsibility assessment can provide information on the risks and opportunities that could potentially affect the company’s financial performance in the future, for example, through changes in sales or expenses. These impacts can be triggered by, among other things, changes in legislation or consumption habits that result from a phenomenon or activity associate with responsibility. 

Following the identification of substantial ESG issues, the purpose of ESG integration is to assess a company's ability to take into consideration the risks and opportunities associated with these and to assess whether the price of the company's securities reflect these factors. Portfolio managers are supported in ESG integration by high-quality ESG assessments and ratings produced by third parties. In addition to assessments carried out by third parties, our country analysis utilises country-specific ESG factors included in our own country-risk model.

Some portfolios include themed investments like green bonds.

Screening is part of the process and excluded companies are taken away from the investment universe. We are interested in the performance of our investments in terms of initiatives and principles concerning general international business practices and responsibility-related norms, like for example, the UN Global Compact.

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:

specify description

          Conclusions of the research provider are continuously challenged internally among fund managers. Feedback is given to research provider to improve the quality of the research.
        

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

Screening doesn't differ too much between internally managed equity and fixed income asset classes. We screen corporate issuers for both exclusion strategy that covers all internal investments and do norms-based screening. Latter is based on external service provider's analysis and classification, whereas the former is based on our internal exclusion list. However, majority of the items on the exclusion list are on the list because of the business involvement screening done by the ESG research provider. In SSA category, we run internal screening that ranks lowest scoring countries off from the investment universe.The scoring incorporates factors that relate to countries' social issues, among other things. Agencies and supranationals are subject to norm based screening.

04.3. Additional information. [Optional]


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

other description

          ESG reports are generated and checked  to ensure there are only issuers that comply with our screening criteria.
        
Positive/best-in-class screening
Norms-based screening

other description

          ESG reports are generated and checked  to ensure there are only issuers that comply with our screening criteria.
        

06.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 07. Thematic investing - overview

07.1. Indicate what proportion of your thematic investments are (totalling up to 100%):

100 %

07.2. Describe your organisation’s approach to thematic fixed income investing

Thematic fixed income investing is concentrated in a mutual fund that invests in greenbonds. We use MSCI ESG Research's definition of greenbonds. The evaluation is based on green bond principles, but has some variations to that. Currently the fund invests at least 50% of it's capital to greenbonds and the amount will probably increase over time as the greenbond market grows further. Also, currently the issuers are not spread evenly between sectors. That causes some limitations as the investment universe is somehow skewed.

07.3. Additional information [OPTIONAL]


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.

If the issuer doesn't fulfill the obligations set out in the offering documents, it will most probably lose the green bond status the third party we use had given to the bond. In this case the bond will be sold from the portfolio.

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]

The reporting requirement is part of the green bond classification criteria we use. This is where the requirement comes from.


(C) Implementation: Integration

FI 10. Integration overview

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

We consider ESG because we think we can increase financial return and / or improve risk-return ratio by integrating ESG. We find responsibility as a competition factor for companies. RI staff has planned the integration process and made sure all the relavant tools are available for fund managers. Integrating ESG into traditional analysis starts with idenfication of relevant ESG risks and opportunities. Once the identification is done, we try to estimate how the company in question is prepared to take advantage of the opportunities and how the company is prepared to face the risks. Company's strategy and / or risk management processes can shed more light on the company's capability to tackle the negative issues and profit from the opportunities. Once the analysis is done, we try to estimate what consequences these might have on for example the costs and revenue. Also, depending on the financial health of the company in question, further analysis can be done on the balance sheet and capital structure etc. In many ways ESG consideration can be said to be more relevant if a company's financial health is poor, as such companies have less opportunities to cope with downside risks.

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

SSA

In sovereign space we have a proprietary model that ranks countries according to several data points. ESG related data points constitute one-third of the weight in the model. This information, in addition to countries' ESG ratings are being used in investment decision.

Corporate (financial)

When analysing financial sector's fixed income securities from ESG point of view, there is quite often information asymmetry present. Due to the nature of banks' business, like bank secrecry, complicated financial structures, off-balance sheet items and possibly large loanbook pose challenges the evaluation of banks. What can be done in analysing banks is to consider if they operate in geographical areas where there are elevated risks for money loundering and corruption. Also, as banks loan books can be large, it is important for us to be able to evaluate ESG risks that are actually in their loan books.  

Corporate (non-financial)

ESG integration approach in corporate (non-financial) fixed income securities is very similar to the one done in equity side. Integrating ESG into traditional analysis starts with idenfication of relevant ESG risks and opportunities. Once the identification is done, we try to estimate how the company in question is prepared to take advantage of the opportunities and how the company is prepared to face the risks. Company's strategy and / or risk management processes can shed more light on the company's capability to tackle the negative issues and profit from the opportunities. Once the analysis is done, we try to estimate what consequences these might have on for example the costs and revenue. Also, depending on the financial health of the company in question, further analysis can be done on the balance sheet and capital structure etc. In many ways ESG consideration can be said to be more relevant if a company's financial health is poor, as such companies have less opportunities to cope with downside risks.

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

In Sovereign space we do have country ESG ratings availbale for portfolio managers. These ratings are used in combination with our internal country risk model that has about one-third weight on ESG related inputs.

Corporate (financial)

In general, first step is to identify relevant ESG factors in each case. This is done with the help of external ESG research and portfolio managers' own knowledge on companies, countries and critical issues. After identifying relevant issues, it is the duty of fund managers to analyse how these factors might affect companies in question. In climate change related issues, portfolio managers are analysing how climate change affects companies and if this effect is already reflected in the price of a bond. We started to use TCFD framework as a tool for more systematic evaluation in 2019.

Corporate (non-financial)

In general, first step is to identify relevant ESG factors in each case. This is done with the help of external ESG research and portfolio managers' own knowledge on companies, countries and critical issues. After identifying relevant issues, it is the duty of fund managers to analyse how these factors might affect companies in question. In climate change related issues, portfolio managers are analysing how climate cange affects companies and if this effect is already reflected in the price of a bond. We started to use TCFD framework as a tool for more systematic evaluation in 2019.

12.3. Additional information.[OPTIONAL]


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