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.