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First Sentier Investors (including First State Investments)

PRI reporting framework 2020

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Fixed income - Engagement

FI 14. Engagement overview and coverage

14.1. Indicate the proportion of your fixed income assets on which you engage. Please exclude any engagements carried out solely in your capacity as a shareholder.

Proportion of assets

14.2. Indicate your motivations for conducting engagement (SSA fixed income assets).

Corporate (financial)

14.2. Indicate your motivations for conducting engagement (Corporate, Financial fixed income assets)

Corporate (non-financial)

14.2. Indicate your motivations for conducting engagement (Corporate, non-financial fixed income assets)


14.2. Indicate your motivations for conducting engagement (Securitised fixed income assets).

14.3. Additional information.[OPTIONAL]

Credit Research Team:

There has been a marked increase in direct engagement with issuers in 2019. On average credit analysts indicate 40-45% of names in the portfolio has had direct interaction with management regarding ESG. The key constraints on why engagement was not higher were due to difficulty with engaging offshore issuers and the reluctance of certain issuers to discuss ESG impacts, although we note this is slowly improving. Asian analysts have indicated > 50% engagement particularly as governance is an area of concern for corporates in the region. Analysts have also noted increased ESG transparency and quality of reporting which has improved visibility.

The motivation for engagement spans across all three listed in 14.2, however for the most part analyst are seeking a greater understanding of ESG strategy and/or management of ESG issues, and to encourage improved disclosure of data. This is in line with our ESG integration focus on material risks faced by the company and to make an assessment of management’s approach and preparedness to manage these risks. We are generally seeking better quality data - especially those provided by the company or a verified third party on a consistent basis – to allow us to track the company’s progress over time especially against stated ESG targets.

Sovereign engagement example: Zambia trip notes, November 2019:

Our meetings in Zambia were particularly fruitful from an ESG engagement perspective, and we were able to discuss the impact of the drought as well as ways to reduce climate vulnerabilities with both government policymakers and private sector participants. By engaging on the ground with representatives from the World Bank, we learnt of some initial progress the country has made to explore alternative power generation sources, with the help of the International Finance Corporation (IFC) initiative ‘Scaling Solar’. With a rubberstamp from the IFC, Zambia has been able to procure private investment into two large-scale solar projects that commenced operation in early 2019. The projects have been a resounding success and have generated solar power at tariffs which are the lowest in Africa, to date. Although the total generation has been minimal relative to the overall energy need of the country, we believe the success of the programme is the first step towards finding a viable long-term solution to Zambia’s energy crisis. Such a resolution would unlock multiple percentage points of potential growth and would be materially positive for both Zambian citizens and bondholders.

FI 15. Engagement method

New selection options have been added to this indicator. Please review your prefilled responses carefully.

15.1. Indicate how you typically engage with issuers as a fixed income investor, or as both a fixed income and listed equity investor. (Please do not include engagements where you are both a bondholder and shareholder but engage as a listed equity investor only.)

Select all that apply
Type of engagement
Corporate (financial)
Corporate (non-financial)
Individual/Internal staff engagements
Collaborative engagements
Service provider engagements

15.2. Indicate how your organisation prioritises engagements with issuers.

Select all that apply
Corporate (financial)
Corporate (non-financial)
Size of holdings
Credit quality of the issuer
Duration of holdings
Quality of transparency on ESG
Specific markets and/or sectors
Specific ESG themes
Issuers in the lowest ranks of ESG benchmarks
Issuers in the highest ranks of ESG benchmarks
Specific issues considered priorities for the investor based on input from clients and beneficiaries

If ‘other’ has been selected, please give a description

ESG Risk Assessment – if credit analyst views the ESG risk of a company is “High” or “Very High” they will prioritise engagement for that credit.

15.3. Indicate when your organisation conducts engagements with issuers.

Select all that apply
Corporate (financial)
Corporate (non-financial)
We engage pre-investment.
We engage post-investment.
We engage proactively in anticipation of specific ESG risks and/or opportunities.
We engage in reaction to ESG issues that have already affected the issuer.
We engage prior to ESG-related divestments.
Other, describe

15.4. Indicate what your organisation conducts engagements with issuers on.

Select all that apply
Corporate (financial)
Corporate (non-financial)
We engage on ESG risks and opportunities affecting a specific bond issuer or its issuer.
We engage on ESG risks and opportunities affecting the entire industry or region that the issuer belongs to.
We engage on specific ESG themes across issuers and industries (e.g., human rights).
Other, describe

15.5. Indicate how your organisation ensures that information and insights collected through engagement can feed into the investment decision-making process.

Select all that apply
Corporate (financial)
Corporate (non-financial)
Ensuring regular cross-team meetings and presentations.
Sharing engagement data across platforms that is accessible to ESG and investment teams.
Encouraging ESG and investment teams to join engagement meetings and roadshows.
Delegating some engagement dialogue to portfolio managers/credit analysts.
Involving portfolio managers when defining an engagement programme and developing engagement decisions.
Establishing mechanisms to rebalance portfolio holdings based on levels of interaction and outcomes of engagements.
Considering active ownership as a mechanism to assess potential future investments.
Other, describe
We do not ensure that information and insights collected through engagement can feed into the investment decision-making process.

If ‘other’ has been selected, please give a description

The Credit Analysis and STI teams use our asset stranding framework, which drives the duration decisions of portfolio management, especially concerning longer dated debt.

15.6. Additional information.[OPTIONAL]


1) Peking University Founders Group – We met with management as part of the international bond roadshows, trying to understand the firm’s heightened funding appetite in 2018. After several interactions with management during 2019, and after analysing the latest financials, exposure to the name was lowered and subsequently sold completely. Our ESG risk rating had been increased to ‘Very High’ and the internal credit rating had been downgraded into the high yield category. These moves primarily reflected intensifying governance issues relating to ongoing shareholder disputes and various related negative headline risks. Further, an aggressive management appetite was resulting in the rapid expansion into non-strategic mandates as the firm sought to become a more commercialised conglomerate. Since the disposal, the bonds have depreciated sharply.

2) CNH Industrials: We met with CNHI at a none-deal investor roadshow to establish an initial understanding of the underlying business and their management of ESG risks. Main concerns raised was the sustainability risks in their supply chain and how CNHI are managing those, and their stated aim of meeting specified SDG’s. We followed up on these issues at a subsequent meeting with CNHI at the Kanga conference to determine if further disclosure was available. We were briefed on the progress they have made but finer details were still awaiting permission to be externalised. We retain our High Risk ESG assessment of CNHI driven mainly by modest transparency in reporting, moderate risk from product governance, a large part of their business exposed to farming which in turns is exposed to environmental factors beyond their control and a large exposure to commercial vehicles which is under greater scrutiny to use cleaner fuels.

3) Sydney Airport. We engaged in a one-on-one meeting to address our concerns around PFAS contamination from a prior tenant on one of its industrial commercial buildings within the Sydney Airport land precinct. Sydney airport had defended safety of the site, on the belief that so far the scientific community’s verdict on PFAS has not been conclusive. We sought understanding on the steps to be taken including working with government authorities to assess risks to workers, monitor contamination levels and agreed to touch base again in 2020 on the issue. Our ESG risk assessment for Sydney Airport was affirmed at Low.

4) Origin Energy (electricity utility): At a debt investor meeting we engaged with management to understand the strategy and progress towards its sustainability commitment Management highlighted support of the Paris Agreement to limit the world’s temperature rise to below 2 degrees Celsius and that they remain committed to exiting its coal-fired generation by 2032. The company is on track to have more than 25% owned and contracted generation capacity from renewable and storage by 2020.

5) Engagement with the Australian banks post the Royal Commission. Our discussions focused on governance and social concerns in light of the findings of the Royal Commission. Remediation is ongoing and we will continue to follow up on progress on improvements to its processes and systems.

6) Verizon: The company held a non-deal roadshow to discuss ESG issues in February 2019, as well as to gauge interest in green bond issuance from the company. We discussed Verizon’s environment strategies and targets, and encouraged the company to continue focusing on green initiatives along with providing a high level of disclosure. We communicated the importance of ESG to our global investment process and indicated strong interest in a potential green bond, and also made clear the importance of a credible second-party opinion on the issuance. Ultimately, Verizon issued a $1 billion ten-year green bond to fund renewable energy, energy efficiency, green buildings, sustainable water management, and biodiversity and conservation, with an aim to positively impact the environment and advance U.N. Sustainable Development Goals. The deal received a second-party opinion from Sustainalytics. This marked the first green bond issued in the United States from a telecommunications company. We followed up with Verizon in September 2019 and expressed our support for additional green bond issuance in the years to come, to help develop a stronger culture of sustainable financing in the US.

FI 16. Engagement policy disclosure

16.1. Indicate if your publicly available policy documents explicitly refer to fixed income engagement separately from engagements in relation to other asset classes.

16.2. Please attach or provide a URL to your fixed income engagement policy document. [Optional]

16.3. Additional information [OPTIONAL]

Our Global Stewardship Principles covers all asset classes and states

  • Engagement with management is a fundamental part of our equity and direct investment approach. Our fixed interest teams will engage with management when required in order to ensure that we fulfil our stewardship duties.
  • Our engagement approaches will be tailored to individual companies and the specific issues in question. Effective engagement with companies relies on trust and a credible approach as well as the exercise of our authority as a shareholder (or bondholder) to achieve constructive outcomes to the benefit of our clients' interests.
  • On occasions where our engagement activities are unsuccessful and we believe that this will remain so; we may escalate the issue for example by writing to or meeting with the chairperson or lead independent director, vote against directors who we believe are not providing appropriate oversight, or collaborate on further engagement with other like-minded investors. In some instances we may make our views public. Each instance of escalation will be at the discretion of the investment manager.

We also have an internal Credit Risk Management Policy which outlines, in detail, the approach and process the analyst team must undertake for ESG and credit research – including engagement. All research is subject to a final credit review by the Co-Leads of Credit Research.