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FIM Asset Management

PRI reporting framework 2020

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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.

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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