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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 » Implementation processes

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
100 Integration alone
0 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
100 Integration alone
0 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.

INTEGRATION

Since our founding, GH&A has included environmental, social and governance (ESG) considerations in our investment philosophy.  Our philosophy is nuanced and proactive and has evolved beyond negative screening processes. These factors are incorporated considerations in our portfolio construction, investment decision-making, investment analysis and due diligence.

GH&A’s investing policy seeks to incorporate ESG and responsible investing (RI) trends and metrics across our high-quality universe within our top-down macro framework. We continually evaluate corporate securities on their current ESG/RI initiatives and policies and evaluate their measurable improvement and implementation of these initiatives.

SCREENING

Negative Screening: Includes corporate liquidity criteria, ratings criteria, and the Firm’s long-standing exclusion of corporates with material ESG deficiencies

Positive Screening: Firm’s proprietary ESG overlay; quantitative scoring method of criteria including, but not limited to, sustainability, transparency, ESG risks and opportunities, governance, and integration

01.3. Additional information [Optional].

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, greater consideration is given to securities with higher or trending higher ESG internal scores versus their conventionally valued peers within the portfolio construction process. 


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]

The GH&A investment team formally meets once a week to primarily discuss the five key market factors, (i.e. sentiment, monetary, economic, valuation & inflation) that serve as the foundation of our investment process and fixed income strategy. During this meeting, the team discusses topics such as macroeconomic conditions, market trends, market outlook, headline news, portfolio performance, individual securities, and potential developments pertaining to our ESG assessment, and many other critical topics. An additional key component of this weekly meeting is the review and discussion of target portfolio characteristics. Sustainability risk and opportunities are documented in the Corporate Universe ESG Score and Rank spreadsheet that is produced for these meetings.

All GH&A investment professionals are physically located at the sole office of GH&A in Houston, TX, and sit together in an open trading floor, which leads to continuous daily communication between the team, including communication of ESG information and analysis.


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