Our credit analysis process incorporates fundamental issuer analysis and proprietary quantitative modelling to assess investment opportunities. In particular, the credit selection framework focuses on four categories:
1. Business profile (such as competitive position and quality of management);
2. Financial profile (such as cash flow metrics and debt maturity schedules);
3. Risk factors (including regulation and funding sources); and
4. Valuation factors (such as relative value, technical and covenant strength).
ESG factors are typically captured in the business profile and risk factor categories where they are deemed material to the financial outcomes of the fund using bottom-up analysis. Examples of some of the categories that may be considered (depending on specific sector, business factors, investment horizon, geographic exposures, regulatory factors, and product performance objectives) include:
- management of environmental impacts through the implementation of best practice environmental techniques, technologies and product design;
- environmental performance against a range of environmental indicators including for example, greenhouse gas emissions, energy and water use and environmental incidents;
- the capacity to consult key stakeholders in relation to activities that may have significant environmental impacts; and
- adoption of best practice with regards to management and disclosure of material risks and opportunities associated with climate change.
- equal opportunity, anti-discrimination and industrial relations policies and practices;
- staff incentives, development and training;
- employee benefits and entitlements;
- human capital management performance against a range of indicators, such as voluntary turnover and gender diversity in senior management;
- products or services that provide positive social impacts such as improved health & community well-being, disease prevention, and education;
- management of contractors and suppliers; and
- workplace health and safety performance against indicators such as fatalities and lost time injury frequency rates.
Corporate governance and business conduct:
- codes of conduct and the extent of their integration into the company’s operations;
- provision of regular and appropriate training;
- whistleblower policies and procedures;
- ethical conduct and performance of employees and officers - the extent to which companies are adopting principles in areas such as complying with the law, fair and open dealings and accepting responsibility for their actions;
- product safety and consumer protection; and
- engagement practices with employees, shareholders and key community stakeholders.
For our review of ESG factors for credit, collaboration with Pendal's Equities teams is an important component in the credit research process. ESG data and research from Regnan is also used to enhance our own research and analysis of ESG factors.
In addition to the above, our Responsible Investments Working Group facilitate knowledge sharing and provide input into RI guidelines, strategy and solutions. The group consists of senior members of the investments (all asset classes) and corporate teams (Risk & Compliance, Legal, Sales and Marketing) and its responsibilities are set out in the Responsible Investments Governance Structure. The objective of the group is to review the development and application of Pendal's RI process across offerings and communications, to ensure alignment with Pendal's RI philosophy as well as client expectations and needs. The group does not replace prior risk management and compliance processes, however, serves to enhance the existing controls already in place.