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Lord Abbett

PRI reporting framework 2020

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
99 Integration alone
1 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
99 Integration alone
1 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Securitised
0 Screening alone
0 Thematic alone
99 Integration alone
1 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.

Lord Abbett has maintained a singular focus on the management of money since its founding in 1929. As a firm that is investment-led and investor-focused, we evaluate every decision from an investment perspective in our efforts to achieve superior, long-term, risk-adjusted performance on behalf of our clients. We take seriously our fiduciary responsibility in helping our clients meet their investment objectives, and we believe sustainability can have a tangible impact on an investment’s risk profile and its ability to generate returns over the long term; therefore, we take Environmental, Social and Governance (“ESG”) factors into consideration in our investment analysis. We also believe a responsible investment approach can result in positive impact beyond the financial return of a particular security and, thus, we believe that ESG integration can serve investors at large over the long term.

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
SSA
Corporate (non-financial)
Securitised
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

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

Lord Abbett utilizes screening strategies when required by client-imposed guidelines. The client will typically provide a list of restricted securities or general criteria, which will be incorporated into the investment management guidelines for that particular separate account. 

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

06.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

Lord Abbett has maintained a singular focus on the management of money since its founding in 1929. As a firm that is investment-led and investor-focused, we evaluate every decision from an investment perspective in our efforts to achieve superior, long-term, risk-adjusted performance on behalf of our clients. We take seriously our fiduciary responsibility in helping our clients meet their investment objectives, and we believe sustainability can have a tangible impact on an investment’s risk profile and its ability to generate returns over the long term; therefore, we take Environmental, Social and Governance (“ESG”) factors into consideration in our investment analysis. We also believe a responsible investment approach can result in positive impact beyond the financial return of a particular security and, thus, we believe that ESG integration can serve investors at large over the long term.

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

SSA

When performing research on a particular issuer within the SSA category, our credit analysts provide a bottom-up credit view that includes traditional analysis as well as ESG data from Sustainalytics and their views on ESG factors. Investing in the SSA segment has always required significant analysis of factors such as governance, board structure, inter-related transactions, product governance, and many more. Thus, our analysts constantly engage with companies and sovereign issuers on ESG issues as part of their regular management discussions. ESG information may impact weightings in particular securities, industries, or sectors within our portfolios. In each instance, the extent to which ESG information influences portfolio construction will be determined by our fundamental views and the extent to which we believe the integration of such information will help us realize our clients' investment objectives. 

For municipal bond funds, we utilize a proprietary scoring system to rank each obligor. In developing this approach, we have identified approximately 80 explicit factors within the scope of environmental, social and governance, which are evaluated based upon materiality within particular sectors. Credit Analysts then use this information to formulate a single ESG score for each obligor. The team meets monthly to review these inputs, ratings and best practices in an effort to neutralize the inherent subjectivity of the process and facilitate greater consistency among scoring across sectors. 

Corporate (non-financial)

When performing research on a particular issuer within the Corporate (non-financial) category, we look for qualities that will translate directly to alpha generation for our clients. Certain industry and company dynamics may be considered as we evaluate investment opportunities within various sectors. For example, within Corporates, ESG factors are integrated in different ways. During our process of researching chemical companies, environmental factors are routinely considered as the regulatory construct may restrict certain practices. In the event these practices are violated by a corporation, the entity may be forced to pay fines or undertake other remedial measures, thereby resulting in a potentially negative financial impact on the company.  

Securitised

When performing research on a particular issuer within the Securitized category, our team will use Sustainalytics in order to obtain an ESG score for all corporate entities within the securitized products market – including the issuer, sponsor and servicer. Our goal is to identify factors with regards to ESG issues while conducting fundamental research on securities or deals.

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)
Securitised
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

Securitised

Environmental

Social

Governance

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

SSA

With regard to ESG integration within emerging markets sovereign bonds, our portfolio managers assess historical data and evaluate the trajectory of numerous variables for each country under consideration. These variables include, but are not limited to, climate change resilience, greenhouse emissions, renewable energy usage, GDP per unit of energy, gender equality, women labor participation, literacy rate, ease of doing business, rule of law, regulatory, and political stability.

Our portfolio managers incorporate ESG risk factor discussions into the broader bottom-up sovereign risk assessment which includes traditional financial and macroeconomic variables. In an effort to identify all risks associated with a particular emerging market sovereign issuer and assess claims-paying ability, we conduct an in-depth analysis of the country’s political and economic environment, as well as any historical, current, or future structural reforms that have the potential to significantly impact the country’s creditworthiness and standing in international financial markets.

For municipal bond funds, we utilize a proprietary scoring system to rank each obligor. In developing this approach, we have identified approximately 80 explicit factors within the scope of environmental, social and governance, which are evaluated based upon materiality within particular sectors. Credit Analysts then use this information to formulate a single ESG score for each obligor. The team meets monthly to review these inputs, ratings and best practices in an effort to neutralize the inherent subjectivity of the process and facilitate greater consistency among scoring across sectors.          

Corporate (non-financial)

With regard to ESG integration within our emerging markets corporate debt strategy, our credit analysts provide bottom-up credit opinions including their views on ESG factors. Additionally, we subscribe to in-depth ESG research by Sustainalytics. This research is a supplemental aspect of our research process and is integrated into our proprietary credit analytics platforms. Our analysts constantly engage with companies on ESG issues as part of their management discussions. During the investment process, our portfolio managers will overlay each country’s sovereign bottom-up and ESG view when considering a corporate issuer for inclusion in our portfolio. We seek to utilize our rigorous and extensive research process in the pursuit of outperformance and to calibrate the overall risk of our portfolios, supplemented further by our quantitative models which incorporate ESG factors

When performing research on a particular issuer within the Corporate (non-financial) category, we look for qualities that will translate directly to alpha generation or risk mitigation for our clients. Certain industry and company dynamics may be considered as we evaluate investment opportunities within various sectors. For example, within Corporates, ESG factors are integrated in different ways. During our process of researching chemical companies, environmental factors are routinely considered as the regulatory construct may restrict certain practices. In the event these practices are violated by a corporation, the entity may be forced to pay fines or undertake other remedial measures, thereby resulting in a potentially negative financial impact on the company.  

Securitised

Within the asset-backed securities sector, one thematic example of our engagement and integration approach is our avoidance of issuers with social or governance concerns. We avoid bad actors that mislead consumers and avoid lenders that charge up-front origination fees to borrowers as a primary driver of profit. In terms of governance, we require all of our subprime auto lenders to disclose financials and we perform a Consumer Financial Protection Bureau (CFPB) check. We make sure all lenders are in good standing and have no “Truth in Lending” violations or outstanding lawsuits.

12.3. Additional information.[OPTIONAL]

For municipal bond funds, we utilize a proprietary scoring system to rank each obligor. In developing this approach, we have identified approximately 80 explicit factors within the scope of environmental, social and governance, which are evaluated based upon materiality within particular sectors. Credit Analysts then use this information to formulate a single ESG score for each obligor. The team meets monthly to review these inputs, ratings and best practices in an effort to neutralize the inherent subjectivity of the process and facilitate greater consistency among scoring across sectors.


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