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BT Funds Management (NZ) Limited

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%
Securitised
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.

  • Screening through an exclusion list is incorporated across all direct fixed income securities (see Additional information for current exclusion list).
  • Integration is utilised for all direct fixed income issuers/securities to varying degrees. In general, smaller corporate non-rated entities are more intensely scrutinised than are larger, well known public/listed entities and registered banks. The logic being larger public/listed entities come under broader public/investor scrutiny and the latter under Reserve Bank of New Zealand supervision. However, we do acknowledge that there are from time to time exceptions which require indepth analysis.
  • In the instance of asset backed/securitised securities integration tends to focus on the issuing entity/servicer.

01.3. Additional information [Optional].

Current exclusion list (Dec 2019):

  • the manufacture of cluster munitions
  • the manufacture or testing of nuclear explosive devices (NEDs)
  • the manufacture of anti-personnel mines
  • the manufacture of tobacco   
  • processing of whale meat
  • the manufacture and sale of assault weapons to civilian customers

 


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
SSA
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  

Indicate who provides this information  

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.

Company raw data primarly comes from company reporting (in particular interim/annual and sustainability reports) and presentations, media and market sources. 

BTNZ subscribes to Sustainalytics database for their company analyses and ratings.

Sector reviews are undertaken on a semi-formal basis when reviewing specific issuing entities and their fit within a sector.

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]


(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)
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

  • Utillise Sustainalytics in creating an exclusion list across all portfolios.
  • Investment universe in NZ fixed income is small therefore positive/best-in-class/norms-based screening is not easily achieved.

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

Exclusions are based on an exclusions list provided by Sustainalytics and include listed entities involved in the following activities:

  • the manufacture of cluster munitions
  • the manufacture or testing of nuclear explosive devices (NEDs)
  • the manufacture of anti-personnel mines
  • the manufacture of tobacco   
  • processing of whale meat
  • the manufacture and sale of assault weapons to civilian customers

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

other description

          Sustainalytics updates the exclusions list quarterly and any entities in the New Zealand fixed income universe identified.  There are currently no such entities.
        

06.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

  • BTNZ primarily manages funds on behalf of individuals for their retirement and in this sense the investment horizon is long term. We believe integrating ESG analysis into entity/security analysis will enhance portfolio performance over time. Focus has traditionally been dominated by issuer governance factors, however the urgency to address climate change and sustainability factors has heightened the importance integrating a fuller ESG approach into our analyses.
  • We use information from Bloomberg provided ESG scores, sell-side research, company reports, knowledge and meetings, and company specific research from our ESG provider Sustainalytics, to assess ESG factors applicable to issuers.
  • An overview of these factors is incorporated in the issuer research note prepared by the team.
  • We then assign an internal broad rating for companies researched.  

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

SSA

Our investment in SSAs are typically in large entities that issue into New Zealand in NZ dollars. ESG integration tends to be lighter touch given the global public and invest oversight of these entities have. However, brief one-on-one meeting opportunities with senior funding/relationship personnel is taken to discuss the entity including ESG factors (predominantly governance).

Corporate (financial)

ESG analysis is integral to the credit research process with a deep dive tending to be into those issuers that are smaller and/or unrated in the NZ market or where a particular factor has become topical/highlighted. Sustainalytics score is part of the analysis. Currently the ESG analysis results in a basic three code allocation to an issuer (acceptable to buy, do not increase, do not hold).

Corporate (non-financial)

ESG analysis is integral to the credit research process with a deeper dive tending to be into those issuers that are smaller and/or unrated in the NZ market or where a particular factor has become highlighted. Sustainalytics score is part of the analysis. Currently the ESG analysis results in a basic three code allocation to an issuer (acceptable to buy, do not increase, do not hold).

Securitised

ESG analysis for securitised issues focusses on issuer and servicer governance.

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]


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

Opportunities are taken for one-on-one discussions with funding/relationship personnel for most SSA issuers in the NZ market annually, primarily covering entity strategy, performance and governance.

Corporate (financial)

ESG factors considered with a greater focus on BBB(+/-) or internally rated issuers. This includes the available information (via Bloomberg, Sustainalytics, sell-side research, company reports and presentations and engagement) incorporated into an internal assessment and peer review of the credit resulting in a commentary and internal assigned ESG rating of: acceptable to buy, do not increase, do not hold. 

Corporate (non-financial)

ESG factors considered with a greater focus on BBB(+/-) or internally rated issuers. This includes the available information (via Bloomberg, Sustainalytics, sell-side research, company reports and presentations and engagement) incorporated into an internal assessment and peer review of the credit resulting in a commentary and internal assigned ESG rating of: acceptable to buy, do not increase, do not hold. 

Securitised

ESG factors considered using available information (via Bloomberg, sell-side research, company reports and presentations and engagement) incorporated into an internal assessment and peer review of the credit resulting in a commentary and internal assigned ESG rating of: acceptable to buy, do not increase, do not hold. Focus is predominantly on the governance factor as it pertains to the issuer and servicer of a security and its underlying pool.

12.3. Additional information.[OPTIONAL]


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