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Pareto Alternative Investments AS

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.
Corporate (non-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%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

We deal in private debt to real estate owners, so we do not have a listed universe where we can apply screening. We do however screen incoming deal flow based on our ESG criteria to filter out investments that are unlikely to fit with our ambitions and/or seem to imply unwanted credit risk. We integrate ESG analysis and monitoring in our credit analysis and score each investment on our ESG criteria. Our investment universe is very heterogenous so it is difficult to draw direct comparisons between individual investments

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]

We have a database covering our investments in terms of their ESG status. We will monitor this regularly and will attempt to use this improve the ESG-performance of existing investments.


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

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

Norms-based screening is the minimum, but we also adher to the exclusion lists used by Norway's Government Pension Fund Global when it comes to sectors, and (if relevant) specific companies, when it comes to negative/exclusionary screening. This is also benchmarked against our climate strategy to ensure that investments avoid unwanted climate related risks. We are actively seeking positive/best in class performance, but this is not a requirement for investments - rather a preference.

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
Positive/best-in-class screening
Norms-based 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.

We identify relevant ESG factors through the use of our DDQ. The DDQ returns an overall score on ESG, which is considered in the investment appraisal together with traditional financial metrics. If any material ESG risks emerge, such risks are incorporated into the risk assesment, particularly regarding debt service ability by the borrowers, as well as the re-financing risk at loan maturity. Such ESG risks may also be included in the reporting requirements from the borrower and/or covenants, as part of the loan agreement. This will in particular be the case if such ESG risks are considered material and in need of ongoing monitoring. We conduct ESG analysis both of the issuer and of the major tenants in the underlying properties.

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

Corporate (non-financial)

In our active mandates, we only invest in private, secured loans to real estate owners. We are currently fundraising, and expect to close mid-2020, a direct lending mandate for infrastructure assets and corporations. We will use the same integration approach as before, but the ESG analysis will be more comprehensive and climate-related risks will be more important factors due to the longevity of the investments (up to 25 years). This mandate will also make use of objective ESG factors tied to the terms of the loan(s), so that we incentivise the borrowers to improve on such factors, primarily on climate related issues.

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
Corporate (non-financial)
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]

Our fixed income investments are direct, secured and private loans to real estate owners. None are listed. It is difficult to find benchmarks for these loans to mark the ESG performance against.


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
Corporate (non-financial)

Environmental

Social

Governance

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

Corporate (non-financial)

We evaluate social and governnance issues primarily in the investment process and seek to monitor developments at least on an annual basis. The environmental aspects are taking a more prominent role in the investment process (on the back of our climate strategy) and we are more actively engaging with issuers to ensure that climate risks related to the underlying assets are managed well.

12.3. Additional information.[OPTIONAL]


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