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Capital Group

PRI reporting framework 2020

You are in Direct - Fixed Income » Fixed income - Engagement

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.

Category
Proportion of assets
SSA

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)

Securitised

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

14.3. Additional information.[OPTIONAL]

Active stewardship of our investments reflects our focus on fundamentals and with a long-term horizon. We regularly appraise the sustainability of the companies and countries we invest in through our proprietary in-house research and engagement with a range of stakeholders. We rely on our proprietary research but are actively augmenting with widely accepted third-party research including MSCI, Sustainalytics, etc. In 2019 we engaged with more than 400 companies specifically on ESG topics - not to mention the number of times ESG topics came up in regular ongoing meetings between our investment professionals and management. Ongoing conversations with company decision-makers is an important part of active stewardship. This is in addition to the over 12,000 face-to-face meetings held by investment professionals as part of the fundamental investment research. We encourage companies to adopt best practices in key areas, such as board diversity, as a means for greater inclusion of different perspectives. We believe engagement, not exclusion, is a more effective path toward positive impact.

We believe ESG impacts the long-term outcomes of the companies and countries we invest in. Although we have been discreet about engagement issues in the past, we are becoming more vocal in expressing our views on active stewardship, which is at the heart of our culture. We use our voice as investors to contribute to setting high standards of industry practice.

Engagement with companies, regulators, politicians, other government and municipal agents is a natural and essential element of our investment process. Analysts and portfolio managers engage directly with market participants, meeting regularly with senior individuals including company management, board members and policy makers. We engage these individuals across a wide range of topics including ESG issues where relevant. Our primary concern when engaging either with corporate management or government representatives is always around our duty to our clients and to act in our clients best long-term financial interests.

Our on-the-ground, globally integrated research approach is the basis for identifying long-term investment opportunities. We commit substantial resources to global research. The strong, long-term relationships our investment professionals develop with a company board and management enable us to maintain an active approach to stewardship of the companies in which we invest on behalf of clients.

Where we identify issues that we believe will have material, long-term impacts to shareholder value, we will engage with companies on these. How management responds about a particular issue demonstrates their understanding of the matter and the steps they take to address it and can provide a useful input in assessing the quality of management. This, in turn, is a key factor in our decision-making regarding investment in a company. Engagement and  stewardship often takes place over several years and may include goals, targets and outcomes which can often change over time. Outcome of the engagement could be slow as companies investigate issues flagged or they seek to change corporate culture. Strategic and governance related issues, including those related to long-term environmental or social issues, are not static; they can range from being an isolated catastrophic event to a series of short-term seemingly innocuous events that turn out to be extremely complex and have long-term implications.

 


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
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
Individual/Internal staff engagements
Collaborative engagements
Service provider engagements

15.2. Indicate how your organisation prioritises engagements with issuers.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
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
Other

15.3. Indicate when your organisation conducts engagements with issuers.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
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
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
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
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
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

see below

15.6. Additional information.[OPTIONAL]

The internal generation of research by our own analysts enables us to adopt a customised approach. We distinguish, within a particular industry or sector, those companies that are better or worse at managing the ESG risks relevant to that industry. Good management of ESG risks is an integral part of good governance - which is considered by our analysts when making investment decisions.

Fixed income analysts at Capital are industry specialists with many years' experience following industry sectors. They work closely with their equity counterparts which enhances the ability to have excellent access and contacts with senior and operational management of companies.

Corporate bond analysts undertake site visits and research trips to understand company operations, as well as discussions with regulators, politicians, specialists and other expert parties as part of their effort to understand company business models and risk factors.

For sovereign bond investors the aim is to assess and understand credit risk and identify securities issued by a government whose risk profile is directionally improving. In our experience, ESG issues are relevant for country analysis and can affect our evaluation of the risk premium for sovereign bonds. Valuing the risk premium requires an understanding of the extent to which ESG factors can impact a country and is particularly the case in emerging markets.

Our philosophy is to seek long-term value in fixed income by devoting significant resources to internally generated, fundamental research. This approach is grounded in the belief that:

Active management based on fundamental research provides opportunities to achieve superior long-term returns for fixed-income investors. Employing multiple drivers such as duration, yield curve, spread, sector rotation, and security selection - on a global basis - builds portfolios that can exhibit superior risk-adjusted returns. Exceptional security selection combined with top-down perspectives is essential for success. Being aware of portfolio risks and effectively managing those risks is vital to delivering consistent results.

The Capital System provides a distinct and disciplined approach to fixed-income portfolio management. The longevity and diversity within our teams of investment professionals provides us with a unique institutional memory and is an excellent resource when making investment decisions, be they buying or selling. Our investment professionals are required to produce an investment note for each recommendation which is discussed at weekly investment meetings; each investment case is peer reviewed and scrutinised.


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.

16.3. Additional information [OPTIONAL]


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