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.

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.  

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.

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.

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.

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.