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Garcia Hamilton & Associates, L.P.

PRI reporting framework 2020

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(C) Implementation: Integration

FI 10. Integration overview

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

ESG research is incorporated in our general research process. All firm-level ESG resources are available at the strategy level and have influenced our overall investment strategy since the Firm's inception (1988). GH&A’s internal resources consist of our initial screening process of the universe of eligible names for portfolio inclusion and only invest in high-quality securities. Within the corporate sector, we screen for the largest issuers and companies rated A- or better by 2 of the 3 rating agencies.  We then remove foreign companies/Yankees, alcohol, tobacco, gambling, and defense companies.  After applying this screen, our investable corporate universe shrinks to approximately 80 issuers.  All portfolios will hold either U.S. Treasuries, agency debentures, agency guaranteed MBS and high-quality corporate securities.

We utilize traditional financial and quantitative metrics analysis as well as qualitative assessments to identify ESG risks and opportunities and inform buy/sell/hold decisions. The Firm uses both internal and external resources to acquire data, information and analyses on sustainability factors facing our corporate universe.  GH&A collects historic and peer level data on our corporate securities including RobecoSAM, Sustainalytics Rank, ISS Quality Score, CDP Climate Score as well as Bloomberg ESG disclosure metrics.  The reports from these third-party providers assist the investment team in its overall evaluation process and provides a base to further study/research these securities for continued inclusion in our portfolio. Corporate securities are evaluated based on improving or declining adherence to PRI guidelines. If a security within our investment universe fails to maintain a positive ESG trajectory, it will receive diminished consideration for future investments.

ESG factors are addressed during the final phase of vetting investment ideas and potential holdings.

We first conduct our initial screening process of the universe of eligible issuers for portfolio inclusion and only invest in high-quality securities. Within the corporate sector, we screen for the largest issuers and companies rated A- or better by 2 of the 3 rating agencies. We then remove foreign companies/Yankees, alcohol, tobacco, gambling, and defense companies. After applying this screen, our investable corporate universe shrinks to approximately 80 issuers at the present time. All portfolios will hold either U.S. Treasuries, agency debentures, agency guaranteed MBS and/or high-quality corporate securities. For strategies that include corporate bonds, the corporate issue selection process incorporates a relative ranking of corporate issuers across the relevant ESG metrics for the relative industry within our high-quality universe. This ESG relative score is used to, not only identify issuers which maintain a high proprietary ESG internal score and trend, but, all things equal, initiate a positive screening methodology to discriminate among securities with comparable conventional relative values.

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

SSA

As stated in 10.1, our approach is fully integrated to each type of fixed income we invest in: SSA, Corporate (financial), Corporate (non-financial), and Securitized.

Corporate (financial)

As stated in 10.1, our approach is fully integrated to each type of fixed income we invest in: SSA, Corporate (financial), Corporate (non-financial), and Securitized.

Corporate (non-financial)

As stated in 10.1, our approach is fully integrated to each type of fixed income we invest in: SSA, Corporate (financial), Corporate (non-financial), and Securitized.

Securitised

As stated in 10.1, our approach is fully integrated to each type of fixed income we invest in: SSA, Corporate (financial), 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
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

The investment team monitors ESG risks on a daily basis and communicate material ESG events  regularly, including during our weekly investment meetings. The team also sits on an open trading floor, which cultivates continuous dialogue and communication on our universe of SSA securities and the integration of ESG factors in the investment process. We limit the securities we select for our portfolios to only high-quality issues. This includes U.S. Treasuries, agency debentures, 15- and 20-year agency-guaranteed MBS, and high-quality corporate securities. We do not invest in non-dollar denominated bonds, including Yankee bonds, high yield securities, credits rated below single “A” by two of the major rating agencies, zero-coupon debt, derivatives or leverage.

Corporate (financial)

The investment team monitors ESG risks on a daily basis and communicate material ESG events  regularly, including during our weekly investment meetings. The team also sits on an open trading floor, which cultivates continuous dialogue and communication on our universe of corporate (financial) securities and the integration of ESG factors in the investment process. We limit the securities we select for our portfolios to only high-quality issues. This includes U.S. Treasuries, agency debentures, 15- and 20-year agency-guaranteed MBS, and high-quality corporate securities. In the case of corporate bonds, we typically invest in issues that are in the index and have a minimum issue size of $1 billion with a quality rating of A- or better and a maturity of 10 years or less. We do not invest in non-dollar denominated bonds, including Yankee bonds, high yield securities, credits rated below single “A” by two of the major rating agencies, zero-coupon debt, derivatives or leverage.

Corporate (non-financial)

The investment team monitors ESG risks on a daily basis and communicate material ESG events  regularly, including during our weekly investment meetings. The team also sits on an open trading floor, which cultivates continuous dialogue and communication on our universe of corporate (non-financial) securities and the integration of ESG factors in the investment process. We limit the securities we select for our portfolios to only high-quality issues. This includes U.S. Treasuries, agency debentures, 15- and 20-year agency-guaranteed MBS, and high-quality corporate securities. In the case of corporate bonds, we typically invest in issues that are in the index and have a minimum issue size of $1 billion with a quality rating of A- or better and a maturity of 10 years or less. We do not invest in non-dollar denominated bonds, including Yankee bonds, high yield securities, credits rated below single “A” by two of the major rating agencies, zero-coupon debt, derivatives or leverage.

Securitised

The investment team monitors ESG risks on a daily basis and communicate material ESG events  regularly, including during our weekly investment meetings. The team also sits on an open trading floor, which cultivates continuous dialogue and communication on securitized issues and the integration of ESG factors in the investment process. We limit the securities we select for our portfolios to only high-quality issues. This includes U.S. Treasuries, agency debentures, 15- and 20-year agency-guaranteed MBS, and high-quality corporate securities. With mortgage-backed securities, we invest in agency guaranteed 15- and 20-year MBS and do not purchase any illiquid mortgage derivatives. We do not invest in non-dollar denominated bonds, including Yankee bonds, high yield securities, credits rated below single “A” by two of the major rating agencies, zero-coupon debt, derivatives or leverage.

12.3. Additional information.[OPTIONAL]


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