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Partners Group AG

PRI reporting framework 2020

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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 (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.

Due to the relatively lower levels of influence and governance rights, the predominant strategy in our fixed income investments is positive and negative screening, and norms-based screening as appropriate, as well as pre-issuance engagement with borrowers. We evaluate performance on the most material ESG factors for a given company during the due diligence process so that we can engage with the sponsor to mitigate investment and reputational risk. We then monitor our fixed income holdings during the ownership period for any adverse ESG-related incidents and engage with the lead sponsor accordingly. To help us monitor these investments systematically, we use our Primera Insights AI tool to flag any ESG issues related to our investments.

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]

Fixed income deal teams are required to complete an ESG due diligence assessment for every investment, specific to the industry in which the company operates. Historically, these assessments have been a mandatory feature in every investment committee submission that passes the second out of four investment gates in our process. This year, the ESG team worked closely with the FI team to develop a new investment memo template that incorporates ESG considerations at the very first stage in the IC process. This new template provides a framework for investment teams to identify risks as early in the IC process as possible and present their ESG thesis to the Global Investment Committee during the first IC discussion of the deal. 

The investment committee rates deal teams on the quality of their submissions, including the ESG DD assessment. Minutes from investment committee discussions, including those focused on material ESG topics, are included in subsequent versions of the investment committee papers.


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
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

Partners Group applies a positive screen for investments that have a clear, positive impact on society or the environment and may qualify for our PG LIFE fund.

We exclude investments that have a clear, negative impact on society or the environment. Negative impact could occur due to core products and services or due to irresponsible business practices. For syndicated loans, given the limited amount of information available and the fast investment pace, we focus only on negative screening. Targets excluded from investment include any with exposure to EU, US, UN or other relevant sanctions regimes. With the launch of our climate change strategy, we also exclude a number of carbon-intensive activities from investments, such as coal-fired power plants, coal mines, tar sands, etc.

In addition, this year we developed and distributed to debt deal teams a sensitivity map, which identifies commonly-encountered ESG-sensitive products, services, or business models. The map identifies any products/services/business practices that are absolutely excluded from investment, as well as those that should be escalated to the ESG team for consideration. For investments that must be escalated, Partners Group applies a norms-based screening to determine whether a target operates at, below, or above industry standard, international guidelines, etc.

 

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

other description

          We provide ongoing education to investment teams, including during the on-boarding of new team members, to ensure they keep exclusion criteria top of mind.
        
Positive/best-in-class screening

other description

          We provide ongoing education of investment teams on PG LIFE, to help them understand how to identify investments with a potential positive impact.
        
Norms-based screening

other description

          We educate deal teams on how to use norms-based screening through one-on-one collaborations on investments that require norms-based ESG due diligence.
        

06.2. Additional information. [Optional]

All potential debt investments are required to include ESG content in every investment memo submitted to our investment committee. The ESG team reviews all ESG content and due diligence assessments in these memos and partners with investment team members to identify potential ESG issues and flag gaps in information where further diligence is required. Through this process, we work individually with deal teams to apply negative, positive, and norms-based screening approaches. We also include information in the direct debt investment memo template outlining how to apply these frameworks in the diligence process. This combination of direct engagement and supporting materials helps to ensure that our deal teams are prepared to apply our ESG screening criteria to their investments. 


(C) Implementation: Integration

FI 10. Integration overview

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

In its identification of the most material ESG factors to consider for a given fixed income investment, Partners Group estimates the potential EBITDA impact if a factor is mismanaged. These analyses are then integrated into the financial models for the investments according to the base case, downside, and upside scenarios.

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

Corporate (non-financial)

The approach described above applies to the two types of fixed income that we invest in, corporate (non-financial) and securitized.

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
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]

Other:

  • As appropriate, cashflows for potential investments are adjusted for material ESG factors.
  • In cases were ESG factors are material, these affect also the risk-return profile of a potential investment.

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 (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.

Corporate (non-financial)

Partners Group builds on the substantial research base provided by the Sustainability Accounting Standards Board (SASB). SASB has provided industry briefs that justify the short list of 15-25 ESG factors and metrics deemed most material for a given industry. The industry briefs also provide the basis for claiming materiality by identifying which specific aspects of a company's financial performance are affected by a given ESG factor. Partners Group uses these industry briefs to sharpen its ESG analysis and ensure full integration with the evaluation of the overall business case. In particular, for debt investments, we focus on risk factors, rather than on opportunities to create value, given our limited influence. In addition, SASB's materiality map informs our internal ESG due diligence assessment, which investment teams must complete for every potential debt investment and submit in their memo to our investment committee. This assessment systematically identifies the most material ESG factors for a given industry. 

On an annual basis, we review and update our internal database of material ESG factors included in our ESG DD assessment tool to ensure that it is current. We also introduce non-industry-based factors such as geography-based considerations to help sharpen our analysis. For example, in 2019, we added an ESG factor to our assessment tool which analyzes fraud risk based on Transparency International's Corruption Perceptions Index, a geography-based framework.

For ESG monitoring engagement, our Primera Insight tool scans the internet for ESG-related news for our entire portfolio, including debt investments. ESG-related news on our investments are tracked in our internal database. Based on the circumstances, we engage with the sponsor to understand the reported ESG issues and push for improvements. 

12.3. Additional information.[OPTIONAL]


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