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Aktia Bank p.l.c.

PRI reporting framework 2020

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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
100 Integration alone
0 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
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.

When it comes to government bonds, in our view the responsibility of a country depends on its willingness and ability to solve the challenges presented to it. On a general level, the countries that are able to produce a quality of life that is good, or improving over time, for its citizens, act responsibly. In the short term, temporary factors can impact the economic growth and the quality of life in any specific country. Over the longer term, the economies that are well governed have the highest probability of creating added value for their citizens. We observe the following (both quantitatively and qualitatively) when assessing government bonds from sustainability perspective: political practices, government strength, social development, economic and financial stability, ability to withstand external shocks and willingness to reform.

In corporate bonds we identify ESG related risks and opportunities in different ways and thus create a better ground for sound investment decisions. Therefore, we apply negative screening in accordance with Aktia's Responsible Investment Principles, integrate ESG factors in day-to-day credit reseach and invest actively in thematic bonds such as green and social bonds.   

 

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:

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

03.3. Additional information. [Optional]


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
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

In accordance with Aktias Principles of Responsible Investments, when it comes to corporate bonds we do not invest in companies whose main activity is weapons production, gambling or tobacco. We also do not invest in companies that employs child labor. Within corporate credit we further avoid investments in alcohol producers, predatory lending and companies whose operations are based on coal. Nonetheless, we do invest in so-called transition companies.

In emerging market sovereign debt, countries are listed to four groups based on quantitative and qualitative assessment (traffic light approach): green = investable, yellow = Investments possible, active monitoring on development, red = No government funding (FX positions/AAA investments possible), black = Non-investable. The traffic light approach defines investable and non-investable markets; market pricing and instrument selection defines attractiveness of the investment.

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
Norms-based screening

other description

          An external screening tool is used to screen holdings regularly.
        

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.

If this type of activity would be detected we would assess the situation/reasons behind it on a case-by-case basis.

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.

09.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

Material effects from ESG factors that impact the financial outlook and prospects of companies and countries are accounted for in our valuation and investment process.

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

SSA

We observe the following factors when assessing government bonds from a sustainability perspective: political practices, government strength, social development, economic and financial stability, ability to withstand external shocks, and willingness to reform. An absolute lower score in any single factor does not always translate into excluding an investment. Instead, we focus on longer-term development and trends, whether they are positive or negative. Through instrument selection we can decide whether we are willing to finance a specific government or not. 

Within Emerging market sovereign debt, our strategies have a macroeconomic and fundamentally driven approach with ESG integrated process. Long-term investment horizon is based on country selection with combined qualitative and quantitative decision-making process. With our in-house quantitative model (consisting of around 30 indicators), we monitor the level and the development of economic, political and social factors (environment and climate change risk are included in social component). In addition, we analyze countries based on their performance in UN’s sustainable development goals (SDG) and other broad ESG data sets. A weak development in ESG factors can lead to a situation where country is excluded from our investment portfolios or we are not willing to finance the government.

Corporate (non-financial)

For corporate bonds governance related topics have traditionally been an important part of credit risk analysis but issues relating to the environment and society are nonetheless gaining in importance. We believe that by assessing ESG factors we improve transparency and are able to identify new investment opportunities. Within corporate credit, ESG considerations are integrated in daily research and portfolio management activities. We assess different indicators depending on companies' business models. These are considered relative to relevant peer group and company history. We also consider ESG-related risks to business models and the ability of companies to respond to these risks by adapting their business models. In particular we focus on minimizing climate change related risks. Finally, we look into companies' positive impact on the environment and society. The proprietary ESG analysis includes both quantitative and qualitative components.

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 (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 (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

Within Emerging market sovereign debt, E, S and G factors are represented in our country selection model with wide set of indicators. They are a fundamental part of our country analysis and seen equally important as traditional economic factors. With our in-house quantitative model (consisting of around 30 indicators), we monitor the level and the development of economic, political and social factors (environment and climate change risk are included in social component). In addition, we analyze countries based on their performance in UN’s sustainable development goals (SDG) and other broad ESG data sets. A weak development in ESG factors can lead to a situation where country is excluded from our investment portfolios or we are not willing to finance the government.

Corporate (non-financial)

We assess companies both qualitatively and using a proprietary ESG tool constructed in-house. The tool looks at a large dataset depending on sector/industry in question. The tool comprises indicators for E, S, G, so that there are in total 85 different indicators. The data source for the tool is Bloomberg. The credit team members then conduct qualitative analysis in order to broaden and widen a company's ESG profile when deemed necessary.   

12.3. Additional information.[OPTIONAL]


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