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New York State Common Retirement Fund

PRI reporting framework 2020

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income

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.
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Securitised
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 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 believe that ESG analysis provides a holistic view of fixed income issuers and helps enhance our fundamental credit analysis.  We employ a combination of integration, thematic, and screening strategies to incorporate ESG into our fixed income investments as below:

Integration is an effective way to systematically address ESG risks and capture ESG opportunities, which we apply to our credit analyses on corporate and securitized fixed income issuers.
Thematic strategy provides opportunities to invest in sustainability solutions consistent with our fiduciary duty. We look to invest in nine environmental and social themes defined under our Sustainable Investment-Climate Solutions (SICS) program such as climate change, affordable housing, among others.
We employ negative screening for companies that add articulable, serious, and sustained investment risk to the portfolio. Our specific criteria includes firearms manufacturers and private prisons. We are also evaluating thermal coal mining companies’ readiness for a low carbon transition, and engaging with the individual companies before considering divestment.

For SSA, we largely invest in US Treasuries and Federal Agency housing bonds to preserve our capital while receiving a dependable income stream, and our exposure to municipal and other sovereign debts is minimal. 

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research

02.1. Indicate which ESG factors you systematically research as part of your analysis on issuers.

Select all that apply
Corporate (financial)
Corporate (non-financial)
Securitised
Environmental data
Social data
Governance data

02.2. Indicate what format your ESG information comes in and where you typically source it

Indicate who provides this information  

specify description

          External Investment Manager
        

Indicate who provides this information  

specify description

          External Investment Manager
        

Indicate who provides this information  

specify description

          External Investment Manager
        

Indicate who provides this information  

specific description

          External Investment Manager
        

Indicate who provides this information  

02.3. Provide a brief description of the ESG information used, highlighting any differences in sources of information across your ESG incorporation strategies.

We typically conduct further in-house research to supplement the research provided by third parties across ESG strategies. We use industry and issuer research from multiple sources including company filings, ESG data providers, managers, media reports, NGOs, and the Fund’s Corporate Governance team, among others. We are in the process of integrating ESG data into the fixed income team’s central data and risk modelling system, which informs our fundamental analysis. We also regularly invite expert speakers on key climate change and sustainability trends for our investment team.  

02.4. Additional information. [Optional]


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

03.2. Describe how your ESG information or analysis is shared among your investment team.

03.3. Additional information. [Optional]

We typically conduct further in-house research to supplement the research provided by third parties across ESG strategies. We use industry and issuer research from multiple sources including company filings, ESG data providers, managers, media reports, NGOs, and the Fund’s Corporate Governance team, among others. We are in the process of integrating ESG data into the fixed income team’s central data and risk modelling system, which informs our fundamental analysis. We also regularly invite expert speakers on key climate change and sustainability trends for our investment team.  


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
Corporate (financial)
Corporate (non-financial)
Securitised
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

We employ negative screening for companies that add articulable, serious, and sustained investment risk to the portfolio. This includes issuers that are involved in firearms manufacturers and private prisons. For thermal coal mining companies, we are conducting further research to evaluate individual companies’ readiness for a low carbon transition, and are engaging with the companies before considering divestment.

We also consider an issuer’s ESG performance relative to its peers in our fundamental credit analysis. We typically analyze a green or sustainable bond issuer’s ESG performance as part of our fundamental analysis on themed bonds. For example, we factored Xcel Energy’s subsidiary’s performance in climate change and the low carbon transition into our investment decision as part of the investment analysis when we considered purchasing their green bonds.

Our external managers incorporate positive screening to invest in best-in-class performers in ESG consistent with fiduciary duty.  
 

 

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Private Prison

Firearms

Thermal Coal Mining 

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Climate change

Affordable Housing 

Access to healthcare

05.2. Additional information.


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
Positive/best-in-class screening

06.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 07. Thematic investing - overview (Private)


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.

We have not identified such cases yet; but if an issuer failed to disburse bond proceeds as described in their offering documents, we are prepared to engage with the issuer to seek improvement in their practices

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]

We measure carbon emissions of our corporate fixed income investments to measure short-term regulatory risks, which informs us about risks and opportunities in key sectors and issuers.


(C) Implementation: Integration

FI 10. Integration overview

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

We typically conduct further in-house research to supplement the research provided by third parties across ESG strategies. We use industry and issuer research from multiple sources including company filings, ESG data providers, managers, media reports, NGOs, and the Corporate Governance team, among others. We are in the process of integrating ESG data into the fixed income team’s central data and risk modelling system, which informs our fundamental analysis. We also regularly invite expert speakers on key climate change and sustainability trends for our investment team.  

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

Corporate (financial)

We typically conduct further in-house research to supplement the research provided by third parties across ESG strategies. We use industry and issuer research from multiple sources including company filings, ESG data providers, managers, media reports, NGOs, and the Corporate Governance team, among others. We are in the process of integrating ESG data into the fixed income team’s central data and risk modelling system, which informs our fundamental analysis.

 

We take a sector-based approach by identifying material ESG factors for fundamental credit analysis.

 

Corporate (non-financial)

We typically conduct further in-house research to supplement the research provided by third parties across ESG strategies. We use industry and issuer research from multiple sources including company filings, ESG data providers, managers, media reports, NGOs, and the Corporate Governance team, among others. We are in the process of integrating ESG data into the fixed income team’s central data and risk modelling system, which informs our fundamental analysis.

 

We take a sector-based approach by identifying material ESG factors for fundamental credit analysis.

Securitised

We typically conduct further in-house research to supplement the research provided by third parties across ESG strategies. We use industry and issuer research from multiple sources including company filings, ESG data providers, managers, media reports, NGOs, and the Corporate Governance team, among others. We are in the process of integrating ESG data into the fixed income team’s central data and risk modelling system, which informs our fundamental analysis.

 

We take a sector-based approach by identifying material ESG factors for fundamental credit analysis.

10.3. Additional information [OPTIONAL]

We largely invest in US Treasuries and Federal Agency housing bonds to preserve our capital while receiving a dependable income stream, and our exposure to municipal and other sovereign debts is minimal. We look to invest in best-in-class municipal bonds and thematic bonds such as affordable housing consistent with fiduciary duty


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
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]

We measure carbon footprint of corporate fixed income investments and conduct an attribution analysis


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
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.

Corporate (financial)

We consider financially material ESG factors in fundamental credit analysis. For the financial sector issuers, we assess their governance and risk management practices, and how issuers evaluate social and environmental risks in their loan underwriting practices. We also started evaluating banks’ risk assessment related to climate risks and opportunities. 

Corporate (non-financial)

We consider financially material ESG factors in fundamental credit analysis. For the financial sector issuers, we assess their governance and risk management practices, and how issuers evaluate social and environmental risks in their loan underwriting practices. We also started evaluating banks’ risk assessment related to climate risks and opportunities. 

Securitised

We consider financially material ESG factors in fundamental credit analysis. For the financial sector issuers, we assess their governance and risk management practices, and how issuers evaluate social and environmental risks in their loan underwriting practices. We also started evaluating banks’ risk assessment related to climate risks and opportunities. 

12.3. Additional information.[OPTIONAL]


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