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

UEthical

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
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 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.

To ensure compliance with our ethical and environmental values, negative screening and esg analysis is conducted across all new holdings prior to investment, and current holdings at regular intervals. Products and practices which we believe to be detrimental to either the environment or society are screened out of our investable universe. 

Companies are also screened for their performance against material environmental, social and governance factors prior to investment. Along with internal research, U Ethical utilises MSCI ESG research, broker reports, ISS governance platform, news sources and many other relevant sources. The relevant ESG factors will vary by industry and company, we use the MSCI ESG scorecard data for each security to ensure the most material risks for each individual company are considered. Qualitative esg analysis helps us to ascertain whether the company has any practices which could breach our negative screening policy.

Our negative screening ensures we invest in line with our ethical values and those of our clients. We choose these strategies to ensure that only companies with strong ESG credentials come through in our investable universe. This is the most appropriate strategy for us due to limited resource. We lean on available, quantifiable ESG ratings where 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:

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

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
Corporate (financial)
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

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

Our negative screen evaluates a company’s products, services and practices to ensure they are not detrimental to society or the environment. U Ethical avoids investing in companies that:

- cause unacceptable damage to the natural environment

- infringe on human rights

- support oppressive regimes

- cause or perpetuate injustice and suffering

- have unacceptable occupational health and safety practices including disregard for minimum wage laws.

U Ethical also systematically excludes companies with operations in the following areas due to their inherent negative impacts:

- Oil, coal, gas (power generation, exploration, extraction)

- Uranium for non-medical uses

- Armaments

- Predatory lending

- Gambling

- Pornography and adult entertainment

- Animal cruelty

- Alcohol production

- Tobacco manufacturing

We recognise that there are occasions when companies inadvertently violate these principles and make genuine efforts to rectify this. Furthermore, we may choose not to exclude a company where a contravention of the principles constitutes less than 5% of the company’s revenue or earnings. In such instances, the contravention may be outweighed by significantly positive factors.

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process (Private)


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]


(C) Implementation: Integration

FI 10. Integration overview

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

U Ethical’s investment process ensures that all investment decisions maintain our vision to improve the world through the power of purposeful investing, as well as promoting careful financial stewardship. This is achieved through the application of positive and negative screens, and engagement with companies – together with a focus on competitive economic returns and sustainability.

We initially integrate ESG analysis within our process through discussions with the issuer, looking at the company through an ESG lens, comparing it to peers, discussing any continuous improvement efforts they have in place relevant to ESG metrics. We then assess how this may improve their financial performance / standing.

Country exposure may raise material ESG risk. For example, a supranational bank could be supporting infrastructure projects that benefit communities, but due to corrupt governments within the countries in which these are built, there could be corruption in the tendering process. 

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

SSA

These would primarily be country specific risk. Second-order effects are also considered. For example, if the country in which they are lending to does not have sustainable practices then by default a lot of the loans they provide for a project will not be carried out in a sustainable manner.

Corporate (financial)

We look at how they support social and environmental endeavours (giving discounted loans for SDG aligned projects as an example). In relation to Governance metrics, we look at compensation but primarily how they have responded to changes in regulation and compliance.

Corporate (non-financial)

A wider set of ESG metrics are relevant to Corporate (non-financial). For example, with REITS we may look at what they are doing to improve the NABERS rating of their buildings and how they are enforcing green leases onto their tenants. 

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

Country ESG risk and exposure is integrated in to the fundamental analysis process. 

Corporate (financial)

Minimum MSCI ESG ratings of B

Maximum MSCI Controversy rating of Very Severe

Governance is systematically reviewed for all holdings as part of our fundamental analysis. We believe that governance is a key metric directly linked to the long-term sustainability of the issuer. 

Corporate (non-financial)

Minimum MSCI ESG ratings of B

Maximum MSCI Controversy rating of Very Severe

Governance is systematically reviewed for all holdings as part of our fundamental analysis. We believe that governance is a key metric directly linked to company stability and performance. 

12.3. Additional information.[OPTIONAL]


Top