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Community Capital Management, INC.

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 (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
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.

Our firm was started for community investing for banks and has grown since that time to include all types of institutional and individual investors looking for fixed income positive impact and ESG solutions.  We invest in high quality, well-researched bonds that have positive societal impacts and use a combination of all three ESG incorporation strategies to make our investment decisions. 

We require transparency into the specific use of the proceeds of each bond, which allows us to align and measure its anticipated corresponding impact with one or more of our impact themes  (i.e. environmental sustainability, gender lens, minority advancement, etc.).  We are then able to customize and report to our clients by geographies as well as by impact themes.

01.3. Additional information [Optional].

Each of the bonds that we select for the portfolio must meet our stringent impact and financial criteria.  Our impact criteria include:

  • Use of Proceeds: The use of proceeds must positively impact a community in one or more ways. 
  • Transparency: Our proprietary approach, whereby we have visibility into the use of bond proceeds, allows us to better understand the financed programs and have confidence in their expected positive environmental and social outcomes.
  • Reporting: We must be able to quantify and report on the expected impact and/or detail the qualitative benefits of the investment. Quantitative data can include the number of jobs created or the number of affordable housing units as well as dollar amounts invested in impact themes. Qualitative research is the “story,” so to speak, which includes detailed explanations of what the security is financing. We report to clients on the positive impact outcomes of their investments and offer institutional clients the opportunity to customize their fixed income portfolios by geographies or impact themes.

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]


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
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

CCM’s fixed income strategies invest in high quality, well-researched bonds where we have confidence that the use of the proceeds will have positive societal impacts.  Each of the bonds that we select for a portfolio must meet our stringent impact and financial criteria.  Our impact criteria and 18 impact themes include:

Use of the Proceeds: The use of proceeds must positively impact a community in one or more ways.  The areas of focus are what we call our 18 impact themes

Transparency: Our proprietary approach, whereby we have visibility into the use of bond proceeds, allows us to better understand the financed programs and have confidence in their expected positive environmental and social outcomes. Without that transparency, we might never know whether the funds raised will provide the positive impact our clients are seeking. 

Reporting: We must be able to quantify and report on the expected impact and/or detail the qualitative benefits of the investment. Quantitative data can include the number of jobs created or the number of affordable housing units as well as dollar amounts invested in impact themes. Qualitative research is the “story,” so to speak, which includes detailed explanations of what the security is financing.

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

06.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 07. Thematic investing - overview (Private)


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.

Each of the bonds that we select for the portfolio must meet our stringent impact and financial criteria.  We will not invest in a bond where we cannot measure, monitor, and track the enviromental and social outcomes.

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.

We seek to invest in high quality, well-researched bonds that have positive societal impacts, requiring transparency into the specific use of the proceeds, and measurement of their anticipated corresponding impact; actively manage the portfolio to take advantage of opportunities and reduce unnecessary risks; build a portfolio that keeps risks lower, income higher, and diversification benefits better than the broad investment grade bond market.  Each of the bonds must meet our stringent impact and financial criteria.  We need to be able to measure, monitor, and track the positive impact outcomes of every bond.

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

Corporate (financial)

We do not have a large allocation to corporate bonds since we will only invest in those corporate bonds where we see an identifiable and impactful use of proceeds. If there is a clear use of proceeds that can be aligned to one or more of our 18 impact themes, the team focuses on the ability for the borrower to meet its debt obligations.  This is done by analyzing the offering statements and corresponding financial information, and then discussions with the banker/issuer to get further insight or clarifications.  Emphasis is placed on redemption features and/or covenants, any credit enhancements, and the sources that will be used for the payment of interest and repayment of principal. The process also serves as a verification of the purpose of the project to ensure that the impact criteria are indeed met. We need to have transparency into the use of the bond's proceeds to ensure the funds raised will provide provide environmental and social outcomes that can be measured, monitored, and tracked. 

The team will also ensure there is no excessive ESG-related risk in regards to the issuer.  We will not invest in corporate bonds issued by companies involved in fossil fuel exploration and production or any activity related to coal, tobacco, chemical manufacturing, weapons, and prison management, among others.

 

Corporate (non-financial)

We do not have a large allocation to corporate bonds since we will only invest in those corporate bonds where we see an identifiable and impactful use of proceeds. If there is a clear use of proceeds that can be aligned to one or more of our 18 impact themes, the team focuses on the ability for the borrower to meet its debt obligations.  This is done by analyzing the offering statements and corresponding financial information, and then discussions with the banker/issuer to get further insight or clarifications.  Emphasis is placed on redemption features and/or covenants, any credit enhancements, and the sources that will be used for the payment of interest and repayment of principal. The process also serves as a verification of the purpose of the project to ensure that the impact criteria are indeed met. We need to have transparency into the use of the bond's proceeds to ensure the funds raised will provide provide environmental and social outcomes that can be measured, monitored, and tracked.  

The team will also ensure there is no excessive ESG-related risk in regards to the issuer.  We will not invest in corporate bonds issued by companies involved in fossil fuel exploration and production or any activity related to coal, tobacco, chemical manufacturing, weapons, and prison management, among others.

Securitised

The team focuses on the voluntary and non-voluntary principal prepayments and any potential delinquencies. For agency MBS, our focus on low-to-moderate income borrowers has historically provided more consistent prepayment protection than what external pricing models would suggest, alleviating some of the issues around accelerated cashflows when rates fall and generating better total returns.We need to have transparency into the use of the bond's proceeds to ensure the funds raised will provide provide environmental and social outcomes that can be measured, monitored, and tracked.  Each bond goes through our rigorous research process which includes impact and financial analysis and is tageed by geography and with one or more of our eighteen impact themes. 

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 (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
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.

Corporate (financial)

Impact/ESG is integral to all aspects of investment activity at CCM. Our goal is for each portfolio to have maximum alignment with CCM’s Impact Themes. We perform a use-of-proceeds analysis of each debt security under consideration. Our tools for alignment achievement vary by asset class. For corporate securities issued by financial institutions, we focus on the issuer’s overall ESG risk intensity using proprietary and third-party research data. For U.S. banks, we also look at the firm’s Community Reinvestment Act (CRA) test score from government regulators.

Corporate (non-financial)

Impact/ESG is integral to all aspects of investment activity at CCM. Our goal is for each portfolio to have maximum alignment with CCM’s Impact Themes. We perform a use-of-proceeds analysis of each debt security under consideration. Our tools for alignment achievement vary by asset class. For corporate securities, we focus on the issuer’s overall ESG risk intensity using proprietary and third-party research data. In some instances, we look at a corporate debt offering with attractive impact purpose that is issued by a company that we may not rate highly on overall ESG characteristics. Our policy is to look at these on a case-by-case basis and make decisions after robust internal discussions.

Securitised

Impact/ESG is integral to all aspects of investment activity at CCM. Our goal is for each portfolio to have maximum alignment with CCM’s Impact Themes. We perform a use-of-proceeds analysis of each debt security under consideration. Our tools for alignment achievement vary by asset class. Securitized debt securities allow for the most detailed use-of-proceeds analysis as issuers typically share substantial granular detail about the collateral being securitized. Our proprietary impact database captures information at the whole loan level so that each dollar invested can be matched up against its specific purpose, geography and impact theme.

12.3. Additional information.[OPTIONAL]


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