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APG Asset Management

PRI reporting framework 2020

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » Implementation processes

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
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 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
100 Screening alone
0 Thematic alone
0 Integration alone
0 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.

We are convinced that investors make better investment decisions if they look structurally at sustainability factors and responsible business practices as this gives them a more comprehensive picture of investment risks and opportunities.

The RI policy requires that our investment teams actively consider relevant environmental, social and governance factors alongside considerations of return, risk and cost in a portfolio context, leading to informed and well-considered investment decisions for every industry and company we are invested in.

01.3. Additional information [Optional].

Based on our belief, APG, together with our clients, has developed an industry-leading inclusion policy whereby the investment universe for capital market investments is assessed based on a proprietary methodology and categorized into leaders and laggards. Investments in laggards require engagement in order to improve their sustainability performance. Engagement is therefore one of the cornerstones of the inclusion policy. We aim to invest only in companies that either perform adequately on our chosen sustainability indicators or those that we expect can make progress in these areas.

In addition to a strong focus on integration, APG has minimum standards and an exclusion policy built into its investment processes.

We expect companies to act in line with the principles of the UN Global Compact. On a regular basis we screen our equity and bond portfolio and engage with companies we think are in breach of these. Where engagement does not lead to the desired change we can decide to divest. This is a last resort and the result of an intensive process that can take several years and involves clear requirements and deadlines. In line with our clients policies, APG does not invest in companies involved in the following:

− Controversial weapons: This means we do not invest in companies that are involved in the production, sale or distribution of cluster munitions, anti-personnel mines, chemical or biological weapons. We define involvement as production, sale and/or distribution of the core weapon system, or components/services of the core weapon system that are considered tailor made (or dedicated) for the weapon or weapons system and essential (key) for the lethal use of the weapons. Regarding nuclear weapons, we exclude companies involved in the production, development, sale and/or distribution of the core weapon system. We also consider companies involved in the production, development, sale and/or distribution of the company is deriving revenues of components or services that are considered tailor-made (or dedicated) for the weapon or weapon system and components or services that are considered essential (key) for the lethal use of the weapon or weapon system.

− Tobacco production: we define involvement as companies that derive revenues (i.e. > 0% revenue) from the production of tobacco products. This relates to companies engaged in manufacturing and producing tobacco products such as cigars, cigarettes, e-cigarettes, beedi, kretek, smokeless tobacco, reconstituted tobacco leaf, snuff, snus, and chewing tobacco. It also includes companies that grow or process raw tobacco leaves

In addition to the exclusion policy on corporates, we exclude sovereign bonds issued by countries that are subject to an arms embargo by the UN Security Council.

The exclusion policy has been changed over 2018, whereby as of January 2019 companies involved in tobacco production, and companies involved in nuclear weapons inside the Non-Proliferation Treaty are excluded from investment. The exclusion list is determined on a semi-annual basis. Per December 2019 we exclude 156 public and 119 private companies that are directly, or through ownership, involved in production of anti-personnel landmines, cluster munitions, nuclear weapons or tobacco production. We exclude 3 companies that we consider to be in violation of the UN Global Compact principles. 10 countries currently feature on the exclusion list for sovereign bonds. We apply the exclusion policy for listed and non-listed issuers, the list of private issuers is internally available and shared with our external managers. 


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  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

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.

See 02.4

02.4. Additional information. [Optional]

The majority of acquired ESG information is company related, including ESG ratings and scores, analysis of policies and performance on specific issues, news and controversies related to ESG issues, and broker analyses of ESG issues. Part of this information is made available to portfolio managers via a centralized knowledge management system (KMS) in which we track our engagement with companies as well as other relevant research, financial and ESG information. For more in-depth analysis, more detailed reports are used.

We procure specialist research that establishes how companies perform against specific standards (e.g. UNGC principles) or verifies the involvement with controversial weapons (cluster munitions). The latter forms the basis for our exclusion policy. If we deem companies to potentially be in breach of the UNGC principles, we start an intensive engagement program that could ultimately result in exclusion if the company does not show sufficient progress over a period of time.

We also acquire ESG research at a country level that provides insight into the risks of investing in sovereign debt and corporates in specific countries, due to the absence of environmental legislation and processes that protect basic human rights or the lack of an institutional governance framework that would protect property rights. This information is used by some investment teams in their country allocation models. In our EMD portfolio we integrate various ESG factors into our investment decisions (including rule of law and corruption) that enables us to better assess risks in a country.

In case third parties do not cover companies, we initiate our own efforts to collect relevant ESG data of issuers.


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]

ESG related information is made available to analysts and portfolio managers via a centralized knowledge management system (KMS) in which we track our engagement with companies as well as other relevant research, financial and ESG information. For more in-depth analysis, more detailed reports are used.

Company inclusion classifications are formally updated on an annual basis. However, portfolio managers/analysts and members of the Global Responsible Investment & Governance team will have access to so-called pro-forma classifications, which are based on latest input data and thereby can monitor developments between formal update moments.

 


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