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Capital Group

PRI reporting framework 2020

You are in Direct - Fixed Income » Outputs and outcomes

Outputs and outcomes

FI 17. Financial/ESG performance

17.1. Indicate whether your organisation measures how your incorporation of ESG analysis in fixed income has affected investment outcomes and/or performance.

Select all that apply
Corporate (financial)
Corporate (non-financial)
We measure whether incorporating ESG impacts portfolio risk.
We measure whether incorporating ESG impacts portfolio returns.
We measure the ESG performance/profile of portfolios (relative to the benchmark).
None of the above

17.2. Describe how your organisation measures how your incorporation of ESG analysis in fixed income has affected investment outcomes and/or ESG performance. [OPTIONAL]

Currently we do not measure the impact or the proportion of returns which are attributable to ESG-related investment decisions. As part of our investment process, we continually review the sectors and the companies in which we invest and this includes the assessment of ESG-related externalities. Engagement with issuers is a natural aspect to our investment process and our analysts and portfolio managers engage directly with key decision makers who impact the outcome of our investments. We apply a ‘screen and engage’ process based on the UN Global Compact Ten Principles to several of our Luxembourg-domiciled UCITS corporate bond funds. This systematic integration of norms-based screening more explicitly demonstrates to our clients how we integrate engagement on controversies.

17.3. Additional information.[OPTIONAL]

FI 18. Examples - ESG incorporation or engagement

18.1. Provide examples of how your incorporation of ESG analysis and/or your engagement of issuers has affected your fixed income investment outcomes during the reporting year.

ESG issue and explanation

Since a German automaker’s emissions scandal was revealed, we have actively engaged with its management on an ongoing basis. We continue to track and monitor progress in resolving what we see as serious governance issues within the company. Looking forward, the company has outlined a roadmap towards e-mobility with specific targets. Our analyst views the events of the last few years as a critically important catalyst for the company to improve its ESG impact, as they deliver mobility to society in a responsible way.

Impact on investment decision or performance

Based on our continuous dialogue with the company, it's our view that the company has made meaningful steps to address its corporate failings and is on a journey to change its culture. We continue to invest in the company.

ESG issue and explanation

Prior to investing in Kenya government bonds, we had been closely monitoring rainfall data to anticipate inflation rates through the risks related to water supply and lost crops in the region. The country stands out in this area according to our analysts, with a dedicated climate change agency that monitors food security and with numerous investments directed towards improvements in irrigation.

Impact on investment decision or performance

Kenya government bonds are now in Capital's investment universe.

ESG issue and explanation

When investing in Latin America, risks such as legal issues, ESG concerns or corruption scandals can keep equity valuations low. Our approach is to favour engagement while navigating these risks. For example, a Brazilian meat-packer is starting to put in place measures to limit damage resulting from legal issues. After meeting with its COO, our Latin America equity analyst concluded that the company has made significant governance improvements –as a result of recent scandals –including hiring the former head of food safety at the USDA, setting up a compliance and risk committee that reports directly to the board, and ceasing political donations. Our analyst travelled to São Paulo to conduct his operational due diligence and, having spent the day at the factory alongside employees, he developed a positive impression of quality standards and employee satisfaction.

Impact on investment decision or performance

Analyst’s view of the company's potential long-term growth prospects has been enhanced. Capital holds the bonds issued by the company in several of our fixed income funds.

18.2. Additional information.