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First Sentier Investors (including First State Investments)

PRI reporting framework 2020

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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
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.

We exclude all investments relating to tobacco, cluster munitions and sanctioned countries firm-side.

In Fixed Income we use an ESG integration method in our process of analysis and portfolio construction. We think ESG integration is the most thorough method in assessing an asset’s downside, and upside, risk thus allowing us to get a better understanding of the total risk profile of an investment opportunity.  The teams share insights through our proprietary Investment Opinion Network (ION) investment system and utilise a shared credit research team.

Our credit research analysts incorporate material ESG factors explicitly into their credit analysis. They assess ESG risk on a five point scale, from Very Low to Very High (along with an ‘Uninvestable’ category). Material ESG risk factors are a significant input in determining Internal Credit Ratings (ICR) for individual issuers. ESG considerations are often among the key reasons why ICRs differ from those of the major agencies.

Portfolio construction uses the ICR for valuation purposes and to determine portfolio weights, as such a lower ESG score, which drives down the ICR will result in a lower portfolio weight.  Portfolio managers also take into account stranding risk when assessing the desirable bond tenure for investment. 

01.3. Additional information [Optional].

Our global fixed income investment capability includes the following teams locally based in the US, Europe, Asia and Australia.

The teams cover:

- Global Fixed Income
- Emerging market Debt

- Asia Fixed Income
- Australian Fixed Income
- Short Term Investments (cash) & Global Credit
High yield
- Credit Analysis (which supports the other teams by producing our internal credit rating for corporate and financial issuers)

For the most part in this submission answers relate to the team who has the greatest focus on a particular type of security, which means answers for SAA relate to our Emerging Market Debt team, answers for securitised debt relate to our short-term investments (cash) team and corporate debt (both financial and non-financial) relate to credit analysis team. For each question we specify which teams the responses relate to. 


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  

specify description

          Direct company engagement and from company reporting
        

Indicate who provides this information  

specify description

          Independent research from universities and industry bodies that provide analysis on ESG themes like climate change, climate resilience, work place safety and modern slavery
        

Indicate who provides this information  

specify description

          Issuers also provide ESG information directly.
        

Indicate who provides this information  

Indicate who provides this information  

specify description

          Transparency International, the United Nations, World Bank, the World Energy Council and the Fund for Peace among others.
        

02.3. Provide a brief description of the ESG information used, highlighting any differences in sources of information across your ESG incorporation strategies.

For corporate issuers, we subscribe to a number of ESG research services including Sustainalytics, MSCI governance research, and Reprisk. Raw ESG data is also available through Bloomberg. Other third party sources we have access to include:  sell side research, NGO, academic, multilateral, development organisation and government research sources. Furthermore we obtain ESG information directly from the company reports – integrated reports and sustainability report.

For SSA and Sovereigns, we use sources from Supra National bodies such as: the Corruption Perception Index (Transparency International) Human Development Index (United Nations Development Program) Ease of Doing Business (World Bank) Fragile State Index (Fund for Peace) Government Effectiveness Index (World Bank) Energy Sustainability Index (World Energy Council) among others.

The Responsible Investment team also distribute research reports and other information to investment teams, however the primary responsibility for sourcing information rests with each team.

With regard to sovereign issuers analysis by our Emerging Markets Debt and Asia Fixed Income team, we rely more heavily on freely available information provided by multilaterals such as the World Bank, IMF, UN, Transparency International etc. These organisations tend to provide us with very rich and robust datasets that allow us to compare macro ESG trends across countries.

02.4. Additional information. [Optional]

ESG has been a core principle in FSI Fixed Income’s research process.  ESG was integrated into our research process in 2008 and we are continually looking to further improve both our internal analysis and our external engagement with companies.  As such we are consistently working with our specialist RI team to better source ESG information/analysis, and organise collectively as a group to progress ESG agenda with both issuers and our clients.

Our Emerging Markets Debt and Asia Fixed Income team encourage multilaterals to support reporting on particular ESG issues by engaging where possible. For example, relaying feedback to the IMF on our desire to see more work on climate vulnerability in Article IV reports, and so on.

We will also on occasion participate in research programs run by Think Tanks and NGO’s.


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

specify description

          We engage with other asset teams within FSI to ensure we use best practice, and actively participate in external ESG forums for Fixed Income investors
        

03.2. Describe how your ESG information or analysis is shared among your investment team.

          Updates and/or changes to the ESG or ICR risk ratings are discussed at weekly meetings between analysts and portfolio managers.
        

03.3. Additional information. [Optional]

Material ESG risk factors are a significant input in determining Internal Credit Ratings (ICR) for individual issuers. We identify material ESG risks as part of our bottom up research process, incorporating analysis of ESG data providers. We have a proprietary  internal ESG dashboard that organises data from ESG providers to help analysts identify where ESG risk are changing and to track performance of ESG metrics over time.

With regard to sovereign issuers analysis by our Emerging Markets Debt and Asia Fixed Income team, ESG factors are critical to our bottom-up fundamental research process, and are included in every sovereign research evaluation. Sovereign analysts identify which ESG factor(s) is/are material drivers of investment performance. Given the breadth of the universe, the number of issues and materiality of each varies considerably. For this reason the analyst assessment is largely qualitative and experience based. Third party research / data are utilised where applicable. ESG scoring is integrated into our portfolio construction process, specifically as part of a position sizing discipline. 


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