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Loomis, Sayles & Company, L.P.

PRI reporting framework 2020

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (A) Implementation: Screening

A) 実施:スクリーニング

FI 04. Types of screening applied

04.1. 実施するスクリーニングの種類を記載してください。

当てはまる項目を全てを選択してください
SSA
社債(金融)
社債(非金融)
ネガティブ/ 排他的スクリーニング
ポジティブ/業界最高のスクリーニング
基準に基づくスクリーニング

04.2. 組織内でアクティブ運用している債券に適用するスクリーニングのアプローチを記載してください。

For portfolios where we also incorporate ESG screening, it is mandated by our clients' guidelines or by regulation and is in addition to our ESG integration work.  Loomis Sayles does not impose any ESG restrictions or exclusions on the investment process. We have the ability to code specific screening restrictions within our trading compliance system. We may partner with external partners with ESG expertise to assist in meeting the client's particular screening requirements.

04.3. 補足情報 [任意]


FI 05. Examples of ESG factors in screening process

05.1. スクリーニング条件に含まれているESG要因の例を挙げてください。

種類

ESG要因

スクリーニング

スクリーニングの説明

Example 1: Environmental, Social and Governance Screening

Our analyst believes that this consumer electronics hardware manufacturer is an industry leader in adhering to ESG principles and disclosures, especially as it relates to environmental and supply chain efforts. Although the company has the ability to generate and control vast amounts of customer data, its management has made a concerted effort to limit data collection, which we view as commendable, especially when compared to industry peers. Importantly, we note that the company benefits from well above average spending in the areas of security, compliance and regulation globally. In an environment where consumers are becoming increasingly aware and concerned about managing their personal data footprint, this company places a high priority on consumer trust. Meanwhile, regulatory compliance is extremely important in maintaining the brand’s image as a privacy-focused electronics producer aligned with the best interests of its customers. These practices allow the company to sustain growth by pivoting towards software and services focused offerings. Our analyst believes this privacy-focus will continue to positively differentiate its product offerings, especially against a primary competitor that is known to have questionable ethics and totalitarian-governmental ties.

種類

ESG要因

スクリーニング

スクリーニングの説明

Example 2.1: Environmental Factor Screening 

One of the largest and most well managed property and casualty insurance (P&C) companies recently announced that it is phasing out coal insurance and investment over the next three years in an effort to combat climate change. This represents the first U.S. focused primary P&C company to take this action. While coal underwriting is not a large business for the company, the announcement sets a positive example for a U.S. focused P&C company to follow and speaks to the company’s commitment in addressing climate change. Our analyst is of the opinion that P&C companies have an incentive to move away from coal given the link between burning coal and the warming of the earth’s climate and the rising frequency of weather-related insurance claims. 

Example 2.2: Social and Governance Screening

Allegations of a scandal caused bond spreads to widen significantly for this global bank. We view money laundering as a reflection of a lack of proper corporate governance as well as a social issue, given the fostering of criminal activity. Our analyst was able to engage directly with management in order to ensure that steps had been taken to address the deficiencies which contributed to the scandal. Governance improved with additional controls put in place and the closing of the offending facility.  The social impacts were partly mitigated through donations of all profits generated from the bank’s illicit operations to organizations charged with preventing financial crimes. Management detailed both the strengths and shortcomings of internal investigations, thereby allowing us to become more comfortable with the range of potential outcomes. History indicates that incidences of money laundering have a material impact on an issuer’s bond prices. In this instance, the bank was required to offer a substantial premium, compared to its peers, in order to complete its inaugural non-preferred senior bond issue. After carefully reviewing the facts and estimating a range of potential financial penalties, we became comfortable that the premium offered by the issuer compensated bondholders for even the most severe potential outcomes.  

種類

ESG要因

スクリーニング

スクリーニングの説明

Example 3.1: Environmental Screening

This leading wireless operator is on track to meet its goals to reduce carbon emissions. Notably, the CEO views sustainability as a top corporate priority. To fund energy saving measures, the company issued an inaugural green bond in 2019 -- the only one within the telecom/cable industry. Additionally, the company’s investments in network and technology provide a myriad of energy-efficient solutions to businesses and consumers. Our analyst notes that the company possesses the following three attributes: 1) The company has a clear goal to reduce carbon intensity by 50% by 2025 and to become carbon neutral by 2035; 2) The CEO is a member of the U.N. Global Compact and helped draft the 17 Sustainable Development Goals (SDGs) to be achieved by 2030; and 3) Investment in connectivity provides technology-based solutions that empower customers to reduce energy usage and carbon footprint, such as telecommuting, telematics, telemedicine and smart building/city management. The Loomis Sayles analyst believes this issuer’s strong ESG image has raised investor demand for the company’s securities to reduce funding costs while its green bond issuance provides funding diversification.  Our analyst has also engaged with the company to offer feedback on how to improve communication to third party assessors and investors on the topic of ESG.

Example 3.2: Social and Governance Screening

This consumer credit and data analytics company holds a meaningful amount of personal consumer data and thus has exposure to ESG risks including data breaches and potential controversy around the use of that personal data. Several years ago the company experienced a widespread breach of consumer data. Uncertainty around the settlements negatively impacted the credit profile and created a lengthy but temporary dislocation in bond spreads. However, costs related to the breach, including settlements as well as the need to improve the firm’s cybersecurity, are now quantified thereby providing investor comfort. 

The Loomis Sayles analyst has engaged with management on numerous occasions to discuss the steps and measures taken to increase efforts in security, compliance and regulation – which also included the elevated and ongoing costs to achieve these steps.  This dialogue reinforced the importance of these efforts in the stability of the overall business and also gave us comfort in the impact to cash flow and leverage related to the breach.

種類

ESG要因

スクリーニング

スクリーニングの説明

Example 4.1: Environmental and Governance Screening

The company in question was previously known as one of the largest pharmaceutical manufacturers globally. However, a 2018 acquisition of a chemical and agricultural producer significantly increased the regulatory and litigation risk for the legacy credit.  As a result, the company now faces enhanced product safety and reputational concerns that could result in a multi-billion dollar payout as well as the inability to sell a major product in its existing portfolio.  While the validity of these concerns is still being debated scientifically, recent developments in the legal cases have contributed to significant volatility in the company’s bond spreads. A review by the Loomis Sayles analyst of the litigation deemed the potential liability manageable, given the company’s strong cash flow and improving balance sheet. Nevertheless, these concerns were highlighted as a major risk factor in the analyst’s recommendation.  

Example 4.2: Social and Governance Screening

A tobacco company has been focused on researching, refining, and marketing alternatives to combustible cigarettes that are believed to be less harmful to consumers’ health. While its competitors have been discussing similar types of investments in reduced risk products with a focus on switching existing smokers, this company has been the most proactive in this area. It has been able to grow its smoke-free heated tobacco portfolio to over 12% of sales and spent 92% of its R&D budget on smoke-free products. The product has gained acceptance in certain parts of Asia and Europe and has recently become available in the US market. Positively, it is not available in flavors that would appeal to youth.

Our analyst also notes that its product development efforts and engagement with investors set it apart from its peers. The Loomis Sayles analyst met with the Chief Sustainability Officer which led to a clearer understanding of the company’s goals, focus, and ambition to continue to grow its heated tobacco portfolio even if it cannibalizes its highly profitable combustible cigarette brands. This company’s efforts to evolve and transform itself support our fundamental credit view.

種類

ESG問題および説明

スクリーニング

スクリーニングの説明

Example 1 - Environmental, Social and Governance Screening.

This country consistently scores well on both social and governance indicators. However, it remains susceptible to climate-change related environmental risks, with drought and bushfires a regular occurrence. The analyst has weighed the returns on investment against environmental risks, related social factors and the government's responsiveness in reacting to such issues. The damage from the fires has affected 10 million hectares of land and destroyed more than 2000 homes. Huge numbers of animals have either been killed or displaced. The analyst believes that growth will continue to be impacted via the disruption to economic activity. There is expected to be reduced consumption, lower productivity from poor health, damaged infrastructure leading to supply-side bottlenecks, and a fall in tourism. The analyst believes that the central bank and government will be proactive in their response but the fiscal cost of such measures is unclear.

05.2. 補足情報 [任意]

In the examples above, we focused not on our client-driven guideline screening, but on ESG issues that resulted in different investment decisions (e.g., exclude, buy, sell, hold, overweight, underweight), based on the explanatory notes associated with this question.


FI 06. Screening - ensuring criteria are met

06.1. 債券投資においてファンドスクリーニングの基準に違反がないことを確認するために組織が使用しているシステムを記載してください。

スクリーニングの種類
ネガティブ/排他的スクリーニング​
基準に基づくスクリーニング​

06.2. 補足情報 [任意]

We take the utmost care in making and implementing investment decisions for client accounts. Before initiating trading for a new account, portfolio managers and/or client service representatives work closely with the client to agree upon limitations and constraints that meet the client's long-term goals and risk tolerances. Portfolio managers and other members of the Investment Management Team, where applicable, are then primarily responsible for complying with their clients guidelines. They use a variety of sources such as Bloomberg and internal accounting system reports to assist them with their compliance responsibilities.

To enhance client guideline compliance monitoring, we have an integrated and automated compliance management system called the Charles River ComplianceMaster System (CRD). CRD is linked to our Charles River Trading System and our accounting system. CRD offers pre-trade, post trade, and batch compliance monitoring capabilities that are used as appropriate for the type of restriction and account being tested. Where operational on a pre-trade basis, CRD is designed to prevent a prohibited client transaction from being sent to the trading desk for execution. The batch compliance reports identify potential guideline issues caused by market movement or other non-volitional events, such as rating downgrades, on a daily basis. The Client Guideline Compliance Team within our Legal and Compliance Department codes client guidelines in CRD, and monitors the portfolio managers' compliance with the client guidelines that have been coded in the system. Currently all of Loomis Sayles institutional fixed income and equity client accounts are coded in CRD. The guidelines of new clients are coded, to the extent feasible, in CRD before or shortly after the start date of a new client account.


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