This report shows public data only. Is this your organisation? If so, login here to view your full report.

Loomis, Sayles & Company, L.P.

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.

We believe that integrating the key material ESG factors is a part of traditional financial analysis.

We made the strategic decision to integrate and embed our ESG work wthin our existing research and investment teams, instead of creating a separate ESG group of analysts.  We believe this structure helps to effectively and authentically integrate the key material ESG issues within research and portfolio management.  We have an ESG Committee, consisting of a full time Director of ESG (appointed in 2018), as well as key investment, marketing, legal, technology and compliance representatives across the firm.  Our ESG Committee has been in place since 2012, and we continue to enhance the process by adding subcommittees such as in marketing, technology, etc.  We also have an Advisory Board that includes members of our executive team.  All of our fixed income assets are included within our ESG incorporation stategy. 

Each investment team considers ESG integration according to its investment philosophy; we do not subscribe to a single investment process.  ESG risks and opportunities stem from factors including an issuer’s management strength and strategy, the use of human and natural resources, as well as regulatory and political considerations.  ESG factors can be critical to evaluating the sustainability of an issuer and the expected impact on investment performance.  Loomis Sayles’ investment teams determine the materiality of these factors in investment decisions, other than where client or regulatory restrictions apply.

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

SSA

ESG factors are fundamental to sovereign credit analysis. Using data from government and independent sources, we look at social factors like access to education and health care, environmental concerns regarding resource constraints, and governance factors like rule of law and quality of institutions. We incorporate into our long term view the published rankings of countries on specific factors like income inequality, the ease of doing business, and the level of corruption in the public sector. Governance issues are a key determinent in our assessments. These issues are discussed at our regularly scheduled product team meetings.

Corporate (financial)

We believe E, S, and G are all important factors to consider as part of ESG integration within the financial sector.  Currently, governance factors appear to receive the highest degree of scrutiny of the ESG metrics.  These are the types of things we assess as part of governance of financial companies: the turnover rate of senior management, the maintenance of prudent financial and risk management policies, the ability to balance the needs of all stakeholders, the severity of pending litigation, separation of the chairman and CEO positions, and the qualifications of company management and board of directors.  However, social factors are also important in the analysis of financial institutions.  We evaluate an issuer's relationship with its customers including fair pricing policies, transparency of terms, labor management practices, and fair lending initiatives.  On environmental matters, we note whether financial institutions participate in the "green bond" market and if they are addressing the growing customer preference of the digitization of products.  These issues are discussed at our regularly scheduled product team meetings.

Corporate (non-financial)

For analysis of corporate issuers, our analysts focus on the material ESG factors identified for each industry and then assess the specific risks and opportunities for each issuer. For example, environmental risks are critical for the automotive, energy and utility industries. Policies to reduce carbon footprints are assessed, including their progress versus competitors. Social factors may be material for apparel producers and the retail industry as they relate to the sourcing of products throughout the supply chain.  We also look at the qualifications, tenure, and diversity of the board of directors. The quality of labor relations is measured by a company's safety record, frequency of job actions, turnover, diversity, and opportunities for advancement. These issues are discussed at our regularly scheduled product team meetings.

 

 

Securitised

Governance is an important factor in the analysis of securitizations.  We evaluate governance primarily as it relates to the alignment of interest between the sponsor and the investor.  More specifically, we look at whether the sponsor is using securitization simply as a method of exit or risk transfer, or as a funding source in which they will continue to participate.  We seek structures where there is strong alignment of interests.  Social and environmental matters are not always relevant to the securitized space.  However, with respect to social factors, we identify and avoid structures and programs that could be viewed as predatory toward consumers.

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)
Securitised
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]

The investment teams have access to ESG scores across their portfolios and relative to the benchmarks against which their accounts are compared.


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

Securitised

Environmental

Social

Governance

12.2. Please provide more detail on how you review E, S and/or G factors in your integration process.

SSA

ESG factors are fundamental to sovereign credit analysis. Using data from government and independent sources, we look at social factors like access to education and health care, environmental concerns regarding resource constraints, and governance factors like rule of law and quality of institutions. We incorporate into our long term view the published rankings of countries on specific factors like income inequality, the ease of doing business, and the level of corruption in the public sector. Governance issues are a key determinent in our assessments. These issues are discussed at our periodic product team meetings.

Corporate (financial)

Within the financial sector, we believe governance factors receive the highest degree of scrutiny of the ESG metrics.  We view the governance history of financial companies as it relates to the turnover rate of senior management, the maintenance of prudent financial and risk management policies, the ability to balance the needs of all stakeholders, the severity of pending litigation, whether the chairman and CEO positions are separate as well as the experience/qualifications of company leaders, including the board of directors.  However, social factors are also important in the analysis of financial institutions.  We evaluate an issuer's relationship with its customers including fair pricing policies, transparency of terms, labor management practices, and fair lending initiatives.  On environmental matters, we note whether financial institutions participate in the "green bond" market and if they are addressing the growing customer preference of the digitization of products.  These issues are discussed at our periodic product team meetings.

Corporate (non-financial)

For analysis of corporate issuers, our team of experienced analysts focus on the material ESG factors identified for each industry and then assess the specific risks and opportunities for each issuer. For example, environmental risks are critical for the automotive, energy, metals & mining, and utility industries. Policies to reduce carbon footprints are assessed, including their progress versus competitors. Social factors come to the forefront for apparel producers and the retail industry as they relate to the sourcing of products throughout the supply chain.  We also look at the qualifications, tenure, and diversity of the board of directors. The quality of labor relations is measured by a company's safety record, frequency of job actions, turnover, diversity, and opportunities for advancement. These issues are discussed at our periodic product team meetings.

Securitised

The relevance of ESG factors varies widely in the securitized market.

Governance analysis within securitizations is done at the deal sponsor level. Governance vis-a-vis alignment of interests between the sponsor and investor is relevant to all structures. Loomis Sayles, through industry/investor associations, led the effort to design and generate industry consensus with regard to enhanced structures to provide alignment of interests between the sponsors of MBS deals and the investors in those deals. These efforts have been coordinated by a task force facilitated by the US Treasury Department and its results published in 2016 (http://www.fairmortgagemarkets.org). In 2018 Loomis Sayles was among the founding members of the Fixed Income Investor Network, an investor-led coalition to promote a well-functioning marketplace (https://www.imn.org/structured-finance/conference/Fixed-Income-Investor-Network/Description.html).  Continuing our leadership role in the Securitized Asset investor space: 1. Actively engaged SFA and are part of their initial ESG committee. 2. We agreed to participate on the ESG panel discussion at the SFA conference 2020.  3. FIIN is live and incorporated, and our head of Securitized Investments will act as the chair of the organization for its inaugural 2 year period.  4. FIIN's strategic plan includes addressing ESG, including determining how the industry can best incorporate ESG. 

Social matters, specifically predatory lending practices, are relevant in consumer related finance. Consumer finance companies often access the securitization market to finance their consumer loans. Our investment process includes a thorough analysis of the loans and the overall business models to gain insight into the loan origination and servicing practices of the finance companies. In general, we favor businesses that employ fair risk-adjusted pricing, aim to provide needed goods and services, and/or help rebuild the credit history of the consumer. We shun business models that systematically engage in predatory lending activities or overly aggressive loan collection practices.

Environmental issues are generally not directly applicable to securitizations. Securitization involves lending to a diversified group of participants and does not typically offer the opportunity to be selective with regard to recipients. As a lender, we have no direct connection to, or influence over, the use of funds. 

12.3. Additional information.[OPTIONAL]


Top