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Pictet Asset Management

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
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%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

Negative screens (exclusion of controversial weapons and countries under UN sanctions) apply to all actively managed fixed income strategies.

Positive screens (best-in-class) apply to less than 5% of AuM. 

ESG integration applies to all our long only Fixed Income strategies.

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

          We conduct due diligence of selected service providers on an annual basis.
        

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
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

Negative screens (exclusion of controversial weapons and countries under UN sanctions) apply to all actively managed fixed income strategies.

Positive screens (best-in-class) are either developed internally or provided by clients (for segregated accounts).

Norms-based approaches are implemented for certain funds and segregated accounts where we apply internally or externally defined exclusion lists. 

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
Positive/best-in-class screening

other description

          We have a pre-trade warning system which notifies portfolio managers before investing in companies with poor governance or high ESG controversies.
        
Norms-based screening

other description

          We have a pre-trade warning system which notifies portfolio managers before investing in companies with poor governance or high ESG controversies.
        

06.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

Our investment processes currently take into account certain ESG factors. Good companies typically have good business practices in corporate governance, environmental and social issues. Whilst the investment team takes these issues into account as part of the fundamental analysis, these criteria are not the main criteria for the investment team to exclude or include positions in the portfolio. That said, there are certain tools and data sources at the disposal of the team which aid in the decision-making process.

ESG data is available within our proprietary portfolio management tool, PAMFolio. These have been available to the investment team since 2014 and include for example:

  • ISS Governance scores and reports
  • Sustainalytics Controversy scores, Corporate governance scores, ESG Risk ratings  (covering all three of E, S and G), product involvement and respective reports
  • CFRA Creative Accounting reports
  • Carbon data (direct emsissions and fossil fuel reserves)

Rating alerts have been put in place by the Fixed Income Risk Team so that our team is quickly able to detect a deterioration (or improvement) in these scores. These alerts take the form of an automatic daily report sent by email to all investment teams, tailored to their respective universe, and any further investigation can be carried out by examining the historical data in the Fixed Income Risk Team’s Tableau database.

In terms of hard exclusions, we systematically exclude companies that are involved in cluster ammunition, anti-personnel landmines, chemical & biological weapons as defined by the Pictet Group Directive on Controversial Weapons. Country exclusions are also defined by a Pictet Group directive and enforced using a pre-trade check in PAMFolio.

 

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

SSA

On the sovereign side we are actively incorporating ESG factors into investment analysis as they help enhance decision making, makes a positive impact on long term performance and help avoid key, often hidden areas of risk.

Our highest convictions are as follows:

  • Economic growth which is not inclusive is not sustainable, i.e. look beyond GDP
  • “Excessive" natural wealth destruction hurts potential growth, i.e. countries are borrowing against the future
  • Quality of institutions and rule of law improves resilience, e.g. during economic downturns, political instability
  • Developing a forward-looking view of government stability is key

These convictions helped us develop a proprietary sovereign ESG score, calculated by the Fixed Income Risk & ESG teams, which is accessible to sovereign Portfolio Managers, Analysts and Risk Managers. 

Pictet Asset Management has formulated an Engagement process for sovereigns. We believe that pushing for change, including as bondholders, can be a valued part of our investment management offering.

Corporate (financial)

ESG information covering corporate governance, controversies and accounting concerns is held in a central database which is available to all investment staff and monitored by the risk team. Each investment team is responsible for incorporating the ESG data that has been made available to them into their own investment process. As such, there is no standard approach for our Corporate Bond teams and some examples of how this has been applied by different teams can be found in the final FI section of this assessment (FI 18).

Pictet Asset Management has formulated an Engagement process for corporates. We believe that pushing for change, including as bondholders, can be a valued part of our investment management offering.

Corporate (non-financial)

ESG information covering corporate governance, controversies and accounting concerns is held in a central database which is available to all investment staff and monitored by the risk team. Each investment team is responsible for incorporating the ESG data that has been made available to them into their own investment process. As such, there is no standard approach for our Corporate Bond teams and some examples of how this has been applied by different teams can be found in the final FI section of this assessment (FI 18).

Pictet Asset Management has formulated an Engagement process for corporates (non-financial). We believe that pushing for change, including as bondholders, can be a valued part of our investment management offering.

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

Data is available to investment teams through Tableau and each team integrates ESG into their investment process in their own way. Examples of the ESG factors we consider for sovereign issuers are shown below.

Environmental factors include but are not limited to:

  • Air Quality
  • Climate Change Exposure
  • Water Stress

Social factors include but are not limited to:

  • Healthcare Capacity
  • Education
  • Capacity to Innovate

Governance factors include but are not limited to:

  • Government Stability
  • Judicial Effectiveness & Independence
  • Right to Privacy

Corporate (financial)

Governance apply across all issuers. E & S factors are defined at the sector level.

Examples of data considered for Financials includes but is not limited to:

  • Products and Services Incidents
  • Business Ethics incidents
  • Customer Incidents
  • Company Data (e.g. % compliance staff out of total workforce, salesforce turnover, % loan book exposed to Community Development)

 

Corporate (non-financial)

Governance apply across all issuers. E & S factors are defined at the sector level.

Examples of data considered for sectors includes but is not limited to:

  • Utilities: CO2 intensity, % renewables
  • Healthcare: Innovation management, Product quality and safety
  • Telecom: Labour relations, Privacy and data security

 

12.3. Additional information.[OPTIONAL]


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