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Central Finance Board of the Methodist Church / Epworth Investment Management

PRI reporting framework 2020

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income

ESG incorporation in actively managed fixed income

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
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 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.

Our approach to ESG issues are the same across all asset classes. We take into account different ESG factors prior to investment, we screen companies based on their exposure to different industries, and we actively look to include investments, such as green bonds, which have a positive environmental or social impact. 

01.3. Additional information [Optional].


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:

specify description

          ESG research is presented at monthly ethics meetings where it is discussed in the team.
        

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

03.3. Additional information. [Optional]

Following engagements with issuers, we give them the ability to comment on the meeting records that we have produced.  ESG information is widely available to all members of investment staff, and ESG issues are regularly discussed in the entire team at our monthly ethics meeting. 


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

We apply the same negative screens to all of our fixed income investments that we do to all of our investments.  The issue-specific policies are in the public domain and on our website.  With respect to SSAs and government securities we consider certain aspects of the issuing country, in particular human rights, corruption, involvement in conflict & development.

We use positive screen to favour green bonds and similar investments in companies that enable sustainable growth by approapriately managing all stakeholders.

 

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process (Private)


FI 06. Screening - ensuring criteria are met

06.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening

other description

          ESG issues are addressed at monthly internal ethics meetings
        
Positive/best-in-class screening

other description

          ESG issues are addressed at monthly internal ethics meetings
        

06.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 07. Thematic investing - overview (Private)


FI 08. Thematic investing - themed bond processes

08.1. Indicate whether you encourage transparency and disclosure relating to the issuance of themed bonds as per the Green Bonds Principles, Social Bond Principles, or Sustainability Bond Guidelines..

08.2. Describe the actions you take when issuers do not disburse bond proceeds as described in the offering documents.

When green/ESG bonds are issued we expect the prospectus to outline that proceeds would only be used for eligible projects, the process by which these are determined and the processes by which they are audited.  In the event of issuers not adhering to these matters, we would not expect to continue holding the bonds.

08.3. Additional information. [Optional]


FI 09. Thematic investing - assessing impact

09.1. Indicate how you assess the environmental or social impact of your thematic investments.

          ESG impacts are considered at monthly internal ethics meetings on an ad-hoc basis
        

09.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

10.1. Describe your approach to integrating ESG into traditional financial analysis.

There is a dedicated ESG section in our investment reports, with a section each for environment, social and governance factors. There are common criteria that are addressed, in addition to high impact issues specific to the sector e.g carbon emissions for electricity generation companies; water management for beverage companies etc.
 

10.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

SSA

When we invest in SSAs we look at the business focus of the institution in the same manner as for a company.  Many SSAs are lending institutions (eg EIB, IBRD) and in these situations we look at the lending policies and the types of projects to which funds are disbursed - these can be both positive (e.g. lending for development) and negative (e.g. lending for coal-fired power stations).  Where SSAs are the responsibility of only one government, we also consider country-specific factors such as human rights and corruption.

Corporate (financial)

We consider the lending policies and practices of the financial institutions to which we lend.  In recent years this has focussed on concerns around money laundering, and bank lending to projects that would involve high carbon emissions, though in the past it also involved concerns around bank lending to projects in specific jurisdictions (e.g. Apartheid-era South Africa).

Corporate (non-financial)

With non-financial companies, the ESG integration into financial analysis, is very similar to that in equities, with an incorporation of ESG metrics into our financial analysis.  This focusses on particular metrics where relevant to the sector concerned.  

10.3. Additional information [OPTIONAL]


FI 11. Integration - ESG information in investment processes

11.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is used to adjust the internal credit assessments of issuers.
ESG analysis is used to adjust forecasted financials and future cash flow estimates.
ESG analysis impacts the ranking of an issuer relative to a chosen peer group.
An issuer`s ESG bond spreads and its relative value versus its sector peers are analysed to find out if all risks are priced in.
The impact of ESG analysis on bonds of an issuer with different durations/maturities are analysed.
Sensitivity analysis and scenario analysis are applied to valuation models to compare the difference between base-case and ESG-integrated security valuation.
ESG analysis is integrated into portfolio weighting decisions.
Companies, sectors, countries and currency and monitored for changes in ESG exposure and for breaches of risk limits.
The ESG profile of portfolios is examined for securities with high ESG risks and assessed relative to the ESG profile of a benchmark.
Other, specify in Additional Information

11.2. Additional information [OPTIONAL]


FI 12. Integration - E,S and G issues reviewed

12.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
SSA

Environmental

Social

Governance

Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

12.2. Please provide more detail on how you review E, S and/or G factors in your integration process.

SSA

When we research an SSA issuer, we look into ESG factors as part of the investment process.  We focus on those factors and metrics which are most relevant to the issuer in question.  We focus on both the practices of the instituion in question and also the projects to which the institution lends (where relevant).

Corporate (financial)

When we research a financial issuer, we look into ESG factors as part of the investment process.  We focus on those factors and metrics which are most relevant to the issuer in question.  We focus on both the practices of the instituion in question and also the projects to which the institution lends (where relevant).  We have a particular concern around high interest lending, and will not lend to issuers who engage in this usurious practice.

Corporate (non-financial)

When we research a non-financial issuer, we look into ESG factors as part of the investment process.  We focus on those factors and metrics which are most relevant to the issuer in question.  

12.3. Additional information.[OPTIONAL]


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