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Loomis, Sayles & Company, L.P.

PRI reporting framework 2020

You are in Direct - Fixed Income » Outputs and outcomes

Outputs and outcomes

FI 17. Financial/ESG performance

17.2. Describe how your organisation measures how your incorporation of ESG analysis in fixed income has affected investment outcomes and/or ESG performance. [OPTIONAL]

Semiannually, our Chief Investment Risk Officer conducts an investment risk review with each investment product team.  The review includes exposure by ESG rating for the representative account, performance by ESG rating and a review of the lower ESG rated securities held in the portfolio with each portfolio management team in order to assess awareness of ESG issues in the portfolios.  Based on the review, the Chief Investment Risk Officer shares processes and practices across all investment teams.

17.3. Additional information.[OPTIONAL]


FI 18. Examples - ESG incorporation or engagement

18.1. Provide examples of how your incorporation of ESG analysis and/or your engagement of issuers has affected your fixed income investment outcomes during the reporting year.

ESG issue and explanation

Social & Governance Issues: Fashion Retailer

Material ESG Issues: Governance issues have led to the loss of market share, revenue, and margin, and are putting the brand on a downward spiral. Management misread US social trends and publicly expressed views on social topics that resulted in loss of customers and market share.

Loomis Sayles Analyst View: The analyst discussed her concern over the involvement and leadership of the co-founder, CEO and Director of the Board. She highlighted the risks related to management's inability to navigate the drastic retail and social changes underway. Also the Board has only three female members; one is a family member to the co-founder. 

Engagement: The analyst spoke with several senior management representatives over time and learned that the CEO for this particular brand has a limited ability to implement fundamental change. We continue to engage with management over these concerns. 

Impact on investment decision or performance

Our analyst and the investment teams are assessing both the risks and potential opportunities with this credit. 

ESG issue and explanation

Environmental & Governance Issues: Major Auto Manufacturer

Material ESG Issues: The company is in the lowest quartile when assessing its carbon footprint. The rate of warranty expense/sales is high compared to industry peers.

Loomis Sayles Analyst View: Through frequent contact with senior management, we believe that the company will have the necessary vehicles available when the European Union's tighter emission standards come into place in 2021. However, this OEM, similar to its competitors, will most likely require the adoption of government sponsored incentive programs to generate sufficent customer demand for these "cleaner" vehicles. We also continue to monitor the number of vehicle recalls, which impact the company's profitability and brand reputation with customers. Management indicates that internal and third party data suggests an improvement in this metric.

Engagement: We continue to engage with management on a regular basis to assess the progress they are making on both of these issues. 

 

Impact on investment decision or performance

The aforementioned issues, together with other fundamental credit factors, have played critical roles in our assessment of the risk/reward of owning this credit.   

ESG issue and explanation

Environmental Issues: Oil & Gas Company

Material ESG Issues: The company produces oil and gas in Colorado with much of its acreage close to occupied structures, houses, and communities.

Loomis Sayles Analyst View: Our analyst believes that investors are not adequately compensated for the high ESG risk related to the company's production facilities' proximity to communities. This proximity increases the risk that harmful emissions, land use problems, noise, and a potential well blowout could harm neighbors.  

Impact on investment decision or performance

We passed on participating in the new issue. 

ESG issue and explanation

Governance and Social Issues:  Country X

Material ESG Issues: There has been a consolidation of power and ongoing deterioration in rule of law, freedom of speech/press and civil liberties.

Our Analyst Views: We were more pessimistic than the external ESG rating provider on these issues as we felt the situation would continue to erode.

Engagement:  As part of the research due diligence process, the team participated in several investor calls with the Prime Minister of the country where our analyst directly asked questions about rule of law and social issues.

 

 

Impact on investment decision or performance

Given the analyst's deteriorating view of the country and our concern about the macroeconomic structure and intentionality under the President's leadership, we no longer felt that we were being sufficiently compensated for the risks facing the country and the currency. As a result, we recommended reducing exposure.

ESG issue and explanation

Governance Issue:  US Based Retailer of appliances and furniture

This company has issued securitizations since 2012 and we have maintained concerns over its predatory lending and servicing practices. 

Impact on investment decision or performance

We have avoided purchasing the securitizations of this issuer given our concerns over its predatory lending practices. 

18.2. Additional information.


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