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Global Evolution

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.
SSA
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.

At Global Evolution, we have conducted extensive ground-breaking research into the relationship between sovereign debt investing and Environmental, Social, and Governance (ESG) indicators. We have found clear correlation between the sovereign funding costs and ESG dynamics, with governance, unsurprisingly, the most prevalent.

The quantitative valuation models effectively provide us with statistically significant valuation signals that are partly based on ESG dynamics and partly based on macroeconomic, financial, and fiscal dynamics. The models provide us with such statistically significant valuation signals, i.e. “trade ideas”, at a weekly basis which informs our investment process.


By not integrating ESG dynamics into investment decisions, investors sacrifice essential information. Our quantitative approach reveals a clear ESG historical “dividend” which is conducive for a successful investment process. 

 

for those reasons we have chosen ESG strategies and combine various factors to become as well informed as possible

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

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

specify description

          compliance reviews are more and more prevalent by compliance department
        

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

          valuation models directly illustrate ESG contribution to trade ideas
        

03.3. Additional information. [Optional]


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

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

 

NEGATIVE SCREENING

Global Evolution maintains proprietary ESG ratings for all emerging and frontier market countries. Our sovereign exclusion process is based on the levels and dynamics of our ESG ratings in order to convey our corporate values for ethical and responsible investing.

 

POSITIVE SCREENING

To inform our investment process, we integrate ESG indicators into our valuation analysis for bonds, nominal exchange rates, and real effective exchange rates. E, S, and G indicators are integrated into econometric valuation models alongside other macro and financial indicators to the extent they generate statistical significance and forecasting power.

 

In addition, our proprietary ESG-adjusted sovereign credit ratings also serve to inform our investment process by providing a high-frequent outlook and rating for sovereign creditworthiness.

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

NEGATIVE SCREENING

Global Evolution maintains proprietary ESG ratings for all emerging and frontier market countries. Our sovereign exclusion process is based on the levels and dynamics of our ESG ratings in order to convey our corporate values for ethical and responsible investing.

 

POSITIVE SCREENING

To inform our investment process, we integrate ESG indicators into our valuation analysis for bonds, nominal exchange rates, and real effective exchange rates. E, S, and G indicators are integrated into econometric valuation models alongside other macro and financial indicators to the extent they generate statistical significance and forecasting power.

 

In addition, our proprietary ESG-adjusted sovereign credit ratings also serve to inform our investment process by providing a high-frequent outlook and rating for sovereign creditworthiness.

 

At Global Evolution, we have conducted extensive ground-breaking research into the relationship between sovereign debt investing and Environmental, Social, and Governance (ESG) indicators. We have found clear correlation between the sovereign funding costs and ESG dynamics, with governance, unsurprisingly, the most prevalent.

The quantitative valuation models effectively provide us with statistically significant valuation signals that are partly based on ESG dynamics and partly based on macroeconomic, financial, and fiscal dynamics. The models provide us with such statistically significant valuation signals, i.e. “trade ideas”, at a weekly basis which informs our investment process.

By not integrating ESG dynamics into investment decisions, investors sacrifice essential information. Our quantitative approach reveals a clear ESG historical “dividend” which is conducive for a successful investment process.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

NEGATIVE SCREENING

Global Evolution maintains proprietary ESG ratings for all emerging and frontier market countries. Our sovereign exclusion process is based on the levels and dynamics of our ESG ratings in order to convey our corporate values for ethical and responsible investing.

 

POSITIVE SCREENING

To inform our investment process, we integrate ESG indicators into our valuation analysis for bonds, nominal exchange rates, and real effective exchange rates. E, S, and G indicators are integrated into econometric valuation models alongside other macro and financial indicators to the extent they generate statistical significance and forecasting power.

 

In addition, our proprietary ESG-adjusted sovereign credit ratings also serve to inform our investment process by providing a high-frequent outlook and rating for sovereign creditworthiness.

 

At Global Evolution, we have conducted extensive ground-breaking research into the relationship between sovereign debt investing and Environmental, Social, and Governance (ESG) indicators. We have found clear correlation between the sovereign funding costs and ESG dynamics, with governance, unsurprisingly, the most prevalent.

The quantitative valuation models effectively provide us with statistically significant valuation signals that are partly based on ESG dynamics and partly based on macroeconomic, financial, and fiscal dynamics. The models provide us with such statistically significant valuation signals, i.e. “trade ideas”, at a weekly basis which informs our investment process.

By not integrating ESG dynamics into investment decisions, investors sacrifice essential information. Our quantitative approach reveals a clear ESG historical “dividend” which is conducive for a successful investment process.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

NEGATIVE SCREENING

Global Evolution maintains proprietary ESG ratings for all emerging and frontier market countries. Our sovereign exclusion process is based on the levels and dynamics of our ESG ratings in order to convey our corporate values for ethical and responsible investing.

 

POSITIVE SCREENING

To inform our investment process, we integrate ESG indicators into our valuation analysis for bonds, nominal exchange rates, and real effective exchange rates. E, S, and G indicators are integrated into econometric valuation models alongside other macro and financial indicators to the extent they generate statistical significance and forecasting power.

 

In addition, our proprietary ESG-adjusted sovereign credit ratings also serve to inform our investment process by providing a high-frequent outlook and rating for sovereign creditworthiness.

 

At Global Evolution, we have conducted extensive ground-breaking research into the relationship between sovereign debt investing and Environmental, Social, and Governance (ESG) indicators. We have found clear correlation between the sovereign funding costs and ESG dynamics, with governance, unsurprisingly, the most prevalent.

The quantitative valuation models effectively provide us with statistically significant valuation signals that are partly based on ESG dynamics and partly based on macroeconomic, financial, and fiscal dynamics. The models provide us with such statistically significant valuation signals, i.e. “trade ideas”, at a weekly basis which informs our investment process.

By not integrating ESG dynamics into investment decisions, investors sacrifice essential information. Our quantitative approach reveals a clear ESG historical “dividend” which is conducive for a successful investment process.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

integrated indicator in our econometric valuation model

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

integrated indicator in our econometric valuation model

05.2. Additional information.

PHILOSOPHY

In partnership with our investors, we are committed to leaving a legacy of impact investing, which assists in the process of lifting nations out of poverty.

 

NEGATIVE SCREENING

Global Evolution maintains proprietary ESG ratings for all emerging and frontier market countries. Our sovereign exclusion process is based on the levels and dynamics of our ESG ratings in order to convey our corporate values for ethical and responsible investing.

 

POSITIVE SCREENING

To inform our investment process, we integrate ESG indicators into our valuation analysis for bonds, nominal exchange rates, and real effective exchange rates. E, S, and G indicators are integrated into econometric valuation models alongside other macro and financial indicators to the extent they generate statistical significance and forecasting power.

 

In addition, our proprietary ESG-adjusted sovereign credit ratings also serve to inform our investment process by providing a high-frequent outlook and rating for sovereign creditworthiness.

 

At Global Evolution, we have conducted extensive ground-breaking research into the relationship between sovereign debt investing and Environmental, Social, and Governance (ESG) indicators. We have found clear correlation between the sovereign funding costs and ESG dynamics, with governance, unsurprisingly, the most prevalent.

The quantitative valuation models effectively provide us with statistically significant valuation signals that are partly based on ESG dynamics and partly based on macroeconomic, financial, and fiscal dynamics. The models provide us with such statistically significant valuation signals, i.e. “trade ideas”, at a weekly basis which informs our investment process.
By not integrating ESG dynamics into investment decisions, investors sacrifice essential information. Our quantitative approach reveals a clear ESG historical “dividend” which is conducive for a successful investment process.


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

other description

          risk management audit on quarterly basis
        

06.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 07. Thematic investing - overview

07.1. Indicate what proportion of your thematic investments are (totalling up to 100%):

100 %

07.2. Describe your organisation’s approach to thematic fixed income investing

The purpose of this Sustainability thematic aproach is to state our philosophy, vision, mission, approach, framework, engagement, principles supported, process of investing, and to articulate to stakeholders our pledge that we will diligently and analytically to the best of our ability integrate sustainability in investment decisions.

Sustainability is a cornerstone in our investment philosophy[1]. The ambitions for sustainable development and assessments non-financial risk of emerging markets is essential to address when investing in their sovereign and corporate securities. Holistically, there is a dual perspective from an investment perspective for addressing sustainability-issues which is oriented towards both ethical considerations as well we business-related issues:

First, the ethical dimension is at the core of our corporate philosophy. In partnership with our clients and stakeholders, we are committed to leaving a legacy of impact investing, which assists countries in lifting them out of poverty on paths to sustained development. Environmental, social, and governance (ESG) aspects of development help shape the development of societies, and we favor engagement rather than isolation of countries. We believe that a sustainable development of E, S, and G areas will help reach the sustainable development goals (SDGs) with the ambition of eradicating poverty with sustainable use of nature’s resources.

 

Second, the business-related issues for considering sustainability in an investment context is due to the link between sustainability and creditworthiness of countries and companies. Our research has found strong statistical evidence that there is a historical correlation between indicators of sustainability and the prices of what we invest in. Consequently, ethical motives aside, there is a strong business case for integrating ESG and SDG dynamics in investment decisions.

These dual objectives are integrated under the umbrella of the following nine pillars:

Philosophy        Our philosophy and corporate values as a company rely on supporting progress towards sustainable growth and development in the countries in which we invest. In practice, this is accomplished by directly integrating sustainability into our investment decisions.

Vision                 Our vision is a world free of poverty driven by institutions, countries and companies.

Mission              Our mission is to promote sustainable development in emerging market countries and companies around the world through our investments

Approach          Our approach is to integrate sustainability indicators directly into our valuation assessments that directly and systematically inform investment decision-making

Framework       Our proprietary approach leans on a unified framework articulated by the United Nation with the formulation of the Sustainable Development Goals.

Engagement     Our engagement with governments and companies is conducted directly and indirectly and is an important avenue to influence decision-making at the issuer level to promote sustainable development. 

Support              Our support goes to a variety of initiatives and principles to promote such as the UN Principles of Responsible Investment, the UN Global Compact and similar initiatives with the purpose of standing by the thought-leadership that such initiatives represent.

Process               Our Sustainability Process lays out the technical details of this Sustainability Policy[2] by describing in detail the definitions and indicators among other relevant process-oriented items.

Pledge                Our pledge to our clients, colleagues, community, society, and the world is to diligently and analytically and with passion to direct our assets under management in a direction that supports and promotes sustainable development to the best of our ability.

These nine pillars are the cornerstones of our Sustainability Policy for our company.

 

[1] This Sustainability Policy was first formulated in 2012 in the form of an ESG Policy. This version is an updated version that integrates the sustainable development goals.

[2] Our Sustainability Process is available as a separate and supporting document to this Sustainability Policy

07.3. Additional information [OPTIONAL]


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..

          we endorse transparency by issuers at all times
        

08.2. Describe the actions you take when issuers do not disburse bond proceeds as described in the offering documents.

our direct and indiract engagement arew the actions tio this end: 

Impact Investing Symposium:  In November 2017, Global Evolution hosted an Impact Investing symposium in our US office at One World Trade Center. The symposium was titled “Emerging Market Sovereign Debt Investing: The Future of Development Finance,” and included speakers and panelists from the UN-PRI, the IMF, and the World Bank, as well as, importantly, the Central Bank governor for eight emerging market economies—one ingredient of our direct engagement with policy makers in the countries in which we invest. We hosted over 35 participants representing a range of organizations in the financial industry.

 

World Bank/IMF Spring Meetings:  In April 2017, four members of the investment team attended the spring meetings of the World Bank/IMF in Washington, DC. This is partly related to our “indirect engagement” with policy makers in the countries in which we invest.

 

ESG dissemination and conference participation: Ole Jorgensen, Research Director, speaks at a number of conferences regarding integrating ESG into the investment process. Notably, in September 2017, Ole spoke on a panel about ESG in Credit Ratings at the UNPRI “In Person” Conference in Berlin, Germany.

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]


(C) Implementation: Integration

FI 10. Integration overview

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

PHILOSOPHY

In partnership with our investors, we are committed to leaving a legacy of impact investing, which assists in the process of lifting nations out of poverty.

 

NEGATIVE SCREENING

Global Evolution maintains proprietary ESG ratings for all emerging and frontier market countries. Our sovereign exclusion process is based on the levels and dynamics of our ESG ratings in order to convey our corporate values for ethical and responsible investing.

 

POSITIVE SCREENING

To inform our investment process, we integrate ESG indicators into our valuation analysis for bonds, nominal exchange rates, and real effective exchange rates. E, S, and G indicators are integrated into econometric valuation models alongside other macro and financial indicators to the extent they generate statistical significance and forecasting power.

 

In addition, our proprietary ESG-adjusted sovereign credit ratings also serve to inform our investment process by providing a high-frequent outlook and rating for sovereign creditworthiness.

 

At Global Evolution, we have conducted extensive ground-breaking research into the relationship between sovereign debt investing and Environmental, Social, and Governance (ESG) indicators. We have found clear correlation between the sovereign funding costs and ESG dynamics, with governance, unsurprisingly, the most prevalent.

The quantitative valuation models effectively provide us with statistically significant valuation signals that are partly based on ESG dynamics and partly based on macroeconomic, financial, and fiscal dynamics. The models provide us with such statistically significant valuation signals, i.e. “trade ideas”, at a weekly basis which informs our investment process.
By not integrating ESG dynamics into investment decisions, investors sacrifice essential information. Our quantitative approach reveals a clear ESG historical “dividend” which is conducive for a successful investment process.

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

SSA

since we invest in one signle type of asset: givernment bonds, it is the same ESG integration approach throughout

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
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]

Estimation of high-frequent ESG indices using AI are being developed and integrated


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

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

SSA

data

Data for ESG factors are supplied by third-party data providers, and include more than 100 indicators across the environmental, social, and governance themes. Different data providers are used including Verisk-Maplecroft, the World Bank, the UN, and others.

 

Negative screening process

Purpose: Global Evolution aim to express our values as a corporation by not including countries in our investable universe if they have extremely low levels in their environmental frameworks, human rights approaches, and governance areas. Consequently, Global Evolution operates with a sovereign exclusion list for the countries that do not meet our minimum ethical criteria across the ESG areas. The ESG approach is therefore anchored in our corporate ethics related to countries' careful consideration of the environment, human rights, democracy and efficiently and fairly managed public institutions.
Process: Global Evolution operates systematically with the following processual steps for negative screening:

Selected data from Verisk-Maplecroft on the following indicators are equally weighted to form E, S, G, and ESG ratings. Global Evolution has chosen these indicators among several possible indicators in order to reflect Global Evolution's corporate ethical values related to countries' careful consideration of the environment, human rights, democracy and efficiently and fairly managed public institutions. This approach with only 5 indicators ensures a simple framework where each variable is under government control (policy variables) so the indicators used (i) reflect our corporate values; (ii) are policy variables to the government that are actionable:

E: Environmental Regulatory Framework Index
S: Freedom of Association and Collective Bargaining Index, and Women's and Girls' Rights Index
G: Democratic Governance, and Corruption.

Within our proprietary IT system's Information Center, the Verisk-Maplecroft data portal is integrated to calculate Global Evolution's ESG ratings based on the 5 variables. In step 2, the ESG rating is constructed based on the indicators chosen in Step 1.
Threshold definitions for high and low ratings are adopted from the Verisk-Maplecroft portal and their data is constructed on a 0-10 scale where:

0-2.5: extremely ESG risk
2.5-5: high ESG risk
5-7.5: medium ESG risk
7.5-10: low ESG risk

Decision rules: There are three rules for constructing our negative list:

CONDITIONALLY EXCLUDED: A country is excluded if its overall ESG rating is in extreme risk (ESG rating <2.5). However, the exclusion is conditional. Even if the ESG rating is in extreme risk, then Global Evolution reserve the right to investigate the country further for levels and dynamics of E, S, and G indicators to decide if the country should be included.
CONDITIONALLY INCLUDED: A country is included if the overall ESG rating is higher than the extreme risk level (ESG rating>2.5). However, the inclusion is conditional. If there is one or more E, S, and G indicators that is in extreme risk (indicator rating<2.5), then Global Evolution reserve the right to investigate the country further for levels and dynamics of E, S, and G indicators to decide if the country should be excluded. Furthermore Global Evolution discretely can exclude countries.

Updating frequency: The ESG ratings are set quarterly, along with data update cycle, and there may therefore be a quarterly update to the Global Evolution exclusion list.
Sovereign exclusion decision process: When ESG ratings are updated each quarter, any country that qualifies for conditional inclusion or conditional exclusion is by the Research Director proposed for approval to the CIO who is final decision maker.
Output and documentation: The output from the quarterly update includes two documents:

 

The sovereign exclusion list will be updated quarterly, and any changes will be explained and justified according to the decision rules in #4 above. The PowerPoint slide indicating the investable will also be updated together with the exclusion list.

 

positive screening process

Purpose: To inform the Global Evolution Investment management process, Global Evolution integrates ESG indicators into the valuation analysis for bonds, nominal exchange rates, and real effective exchange rates.
Process: E, S, and G indicators are integrated into valuation models alongside other macro and financial indicators to the extent they generate statistical significance and explanatory power represented by the adjusted R-squared. Other research initiatives may include ESG indicators as driving indicators for financial variables.
Output: Valuation model output includes valuation signals from the model as a whole, relying on all variables incl. ESG indicators. Output is generated weekly, and is documented through the minutes from the weekly strategy meeting.

12.3. Additional information.[OPTIONAL]


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