This report shows public data only. Is this your organisation? If so, login here to view your full report.

AEGON Asset Management

PRI reporting framework 2020

Export Public Responses
Pdf-img

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

Exclusions (negative screening and norms based screening) are applied to meet the minimum standards set out in clients' policies. ESG integration is applied because we also believe that ESG integration attributes to better informed investment analysis and decision-making. For securitized and SSA investments we also invest in impact investments based on themes like renewable energy, care and affordable housing

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research

02.1. Indicate which ESG factors you systematically research as part of your analysis on issuers.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
Environmental data
Social data
Governance data

02.2. Indicate what format your ESG information comes in and where you typically source it

Indicate who provides this information  

specify description

          Company reports, Bloomberg ESG data
        

Indicate who provides this information  

Indicate who provides this information  

specify description

          Credit rating agencies, Bloomberg ESG
        

Indicate who provides this information  

specific description

          Credit rating agencies, Bloomberg ESG
        

Indicate who provides this information  

02.3. Provide a brief description of the ESG information used, highlighting any differences in sources of information across your ESG incorporation strategies.

Our commitment to ESG integration applies at the broadest level and covers all fixed income portfolios. We make use of a range of sources of ESG data across the company and across products. This includes 3rd party ESG ratings, company, sector and regional reports. In addition, the ESG research team and our portfolio managers undertake further research, including; company analysis (since many of the companies we invest in aren't covered by the ESG rating agencies), regional analysis and review of 3rd party ratings. The ESG research team also provide ESG data and news flow to our fixed income portfolio managers that they would not receive from elsewhere.

02.4. Additional information. [Optional]


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

specify description

          Regular review of academic ESG studies to keep aware of new insights into integrating ESG factors into fixed income investing, thematic research or product trends
        

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

03.3. Additional information. [Optional]

As active managers with commitment to managing focused, benchmark-agnostic portfolios our understanding and analysis of the ESG risks and opportunity for companies and sectors is crucial to our process. Hence the importance of integrating ESG considerations into our decision making process.

 


(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)
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

For the proprietary assets of our parent company we apply an exclusion policy and an accompanying exclusions list with companies involved in controversial weapons production/trade, as well as countries sanctioned by the UN Security Council and/or EU/USA. Moreover, we exclude tobacco companies and companies substantially involved in thermal coal mining and oil sands extraction. We also screen on global norms. This provides input for our engagement program.

For specific products, such as the Ethical Funds in the UK, and all AAM funds in the Netherlands, we apply a broad range of exclusionary criteria. 

In the US and the Netherlands all issuers are categorized based on our ESG Risk Categorization model, which incorporates both a positive and negative screening.

Obviously, where applicable, we also comply to local legislation that prohibits investements in certain categories of controversial weapons, such as cluster munitions.

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Our Ethical Funds apply a range of negative ethical criteria, which result in the exclusion of companies based on their products or activities. The screening criteria that the funds apply include the following:

· Alcohol

· Animal welfare

· Certain banks

· Environment

· Gambling

· Genetic engineering

· Military

· Nuclear power

· Oppressive regimes

· Political donations

· Pornography

· Tobacco

Full details on the ethical funds is available at:

https://www.kamescapital.com/EthicalProcess.aspx

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

For we apply exclusionary and norms-based screening for a large part of our assets under management. Our largest asset owner and parent company Aegon excludes investments in any form of government-issued debt (e.g. government bonds) from countries that we believe systematically breach human rights. Also companies involved in controversial weapons, such as cluster munitions and anti-personnel mines, thermal coal mining, oil sands extraction and tobacco, are excluded from the investment universe for proprietary assets. 

05.2. Additional information.


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

other description

          Depending on the business unit, holdings are reviewed on a daily, weekly or monthly basis.
        
Positive/best-in-class screening

other description

          Depending on the business unit, holdings are reviewed regularly.
        
Norms-based screening

other description

          Our holdings are reviewed on an annual basis (in some cases quarterly) for norms-based compliance - non-compliance is investigated and targeted for engagement.
        

06.2. Additional information. [Optional]

Example from AAM's US business:

Any ESG portfolio specific requirements are monitored by the Portfolio Risk Management & Control Team (PRMC) which is independent of the Investment Management Team. PRMC is involved with the review and approval of new products and client mandates, setting appropriate risk parameters and limits and ensuring consistency with risk appetite for Aegon AM US’ clients. PRMC regularly partners with other front office investment professionals to identify evolving risks to the portfolio and to appropriately quantify and assess those risks.

PRMC utilizes the BlackRock® Aladdin® trade compliance system as well as the Compliance Dashboard function, a workflow tool, to monitor trade restrictions. Using this technology, the firm has the ability to monitor compliance with most client restrictions on a pre- and post-trade basis. Certain trade restrictions require a manual override by an authorized compliance person in order for the trade to proceed to settlement. The firm deploys the BlackRock® Aladdin® system in a manner that prevents trades from proceeding to settlement if a trade restriction is breached. Post-trade compliance is monitored by PRMC on a daily basis. After entering a trade into the BlackRock® Aladdin® system, portfolio managers are immediately notified of breaches of trade restrictions and are required to log in the Dashboard an explanation of why the violation occurred and a plan of action to remedy the breach. During the client on-boarding process, PRMC will identify the trade restrictions and will work closely with BlackRock® Solutions® to code the rules. PRMC then reviews the coding and tests the rules to evaluate their effectiveness.

A report documenting all breaches is reviewed and discussed monthly at the firm’s Risk & Control Committee (“RCC”) meeting. The standard client reporting package includes breach details if necessary.

In other locations we have different tools but similar processes in place.


(B) Implementation: Thematic

FI 07. Thematic investing - overview

07.1. Indicate what proportion of your thematic investments are (totalling up to 100%):

90 %
10 %

07.2. Describe your organisation’s approach to thematic fixed income investing

At Aegon AM we segment dedicated responsible investment solutions into four primary categories: exclusionary, best-in-class, sustainability-themed and impact investments.

Sustainability-themed investing focuses on addressing challenges such as climate change, resource efficiency and human capital. Sustainability-themed strategies may focus on one or multiple themes and may seek to align with well-known objectives such as the UN Sustainable Development Goals (SDGs). Sustainability-themed approaches use positive screening to select securities and sectors that align with intended sustainability objectives. While sustainability-themed strategies seek alignment with addressing broad social and/or environmental challenges, the primary objective is to generate financial returns.

Sustainability-themed strategies typically seek to identify and align portfolios with long-term sustainable secular trends by investing in issuers that positively contribute to solving sustainability problems such as climate change adaptation.  Simultaneously, sustainability-themed strategies may avoid investments that are detrimental to the long-term sustainability of the planet and its people. By investing in solution providers, thematic strategies seek to deliver better long-term performance through a secular shift toward more sustainable issuers.

07.3. Additional information [OPTIONAL]


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.

When the issuer cannot provide the information described above, we cannot take the bond into account for our impact investment portfolio. We need the information to provide evidence for the audit process. Our impact investments are reported publicly in our annual report.

 

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.

Analysts and portfolio managers continually monitor and evaluate ESG-related information from various third-party sources, including issuer disclosures, independent research providers and consultants. Given the increasing availability of ESG-related information, the growing complexity of the issues and the increasing importance clients place on these topics, AAM has continued to invest in our fundamental research teams to ensure that we have the capacity and capability to incorporate these factors into our investment process. This enables our teams to more effectively analyze and integrate these factors in to their view of an industry, country, or individual issuer.

When identifying and integrating ESG factors, we focus on the potential economic impact ESG issues may have on the issuer’s ability and willingness to meet debt obligations. One of our primary areas of research is, and always has been, related to governance risks, such as organizational structure. In the case of corporate issuers, this manifests in management’s historical aggressiveness towards bondholders. In the case of sovereign issuers, we evaluate the strength of governmental institutions. We also assess environmental risks, such as potential costs a corporation may incur for environmental compliance or remediation of damages. For sovereign issuers, we consider topics like how droughts in agriculturally-sensitive regions may affect GDP and potentially cause civil strife. With respect to social risks, we monitor labor practices and how companies interact with and treat their employees, in order to identify risks of prolonged strikes. And at the country level, we discern how wars may affect consumption and fixed asset investment, which are inputs to our sovereign economic forecasts.

While we utilize a number of third-party sources of information to help identify areas requiring additional scrutiny, we do not believe that explicitly following third party ratings is appropriate. Simply put, if our integrated assessment implies that the market misunderstands ESG factors, we adjust our view of the risk premium required when considering the investment for client portfolios. 

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

SSA

Our approach to ESG is deeply rooted in knowing the details of each nation we examine, and the specific threats and opportunities ESG can impart on the willingness and ability of a country to pay its bond holders. Specific to sovereigns, we forecast economic growth and debt load after considering traditional economic variables, as well as ESG influences. Each country is relatively unique in culture and structure. While investors can adapt reasonably well to a given country's prevailing ESG fundamentals, we are interested in understanding ESG in a dynamic way—i.e., how well the ESG baseline scenario may absorb shocks, and subsequently, how those shocks affect the credit in question.

For SSA we use specific ratings and reports our ESG provider provides us with, together with other inputs. We also have developed our own proprietary model and ESG ratings for countries.

Corporate (financial)

All analysts have access to our ESG research platform. They use this platform to assess the companies in their sector on the material ESG issues as part of the fundamental analysis, one of the parts of our investment decision-making model. They include this information in the internal tear sheets and 'quick thoughts' they make. In total over 1,500 companies are covered. All information is stored centrally and accessible to the portfolio managers. 

Corporate (non-financial)

All analysts have access to our ESG research platform. They use this platform to assess the companies in their sector on the material ESG issues as part of the fundamental analysis, one of the part of our investment decision-making model. They include this information in the internal tear sheets and 'quick thoughts' they make. In total over 1,500 companies are covered. All information is stored centrally and accessible to the portfolio managers.

Securitised

ESG analysis, and climate change as part of it, is fully integrated in our Securitized investment process. We use a consistent approach to ESG integration by using a standard framework outlining main ESG issues for each ABS sector. We identify ESG related risk from the underlying collateral pool and from issuer/originator governance. ESG risk materiality is categorized at the security level and the ESG analysis is documented in the security’s tear sheet. The ESG materiality categorization per security is aggregated at portfolio level for reporting purposes.

All analysts have access to our ESG research platform. They use this platform to assess the companies in their sector on the material ESG issues as part of the fundamental analysis, one of the part of our investment decision-making model. They include this information in the internal tear sheets and 'quick thoughts' they make. In total over 1,500 companies are covered. All information is stored centrally and accessible to the portfolio managers.

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)
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 (financial)

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

It is a standardized item in fundamental analysis as described in detail at the previous question. Governance is the principal factor in indicating sovereign credit risk, particularly at the lower end of the ratings scale. Many sovereign defaults in the past have been directly related to institutional and political weakness, such as political instability, political unwillingness to pay debt, corruption, inadequate governance or weak budget management.

Corporate (financial)

It is a standardized item in fundamental analysis as described in detail at the previous question.

Corporate (non-financial)

It is a standardized item in fundamental analysis as described in detail at the previous question.

Securitised

ESG analysis, and climate change as part of it, is fully integrated in our Securitized investment process. We use a consistent approach to ESG integration by using a standard framework outlining main ESG issues for each ABS sector. We identify ESG related risk from the underlying collateral pool and from issuer/originator governance. ESG risk materiality is categorized at the security level and the ESG analysis is documented in the security’s tear sheet. The ESG materiality categorization per security is aggregated at portfolio level for reporting purposes.

12.3. Additional information.[OPTIONAL]


Top