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Pareto Asset Management AS

PRI reporting framework 2020

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(C) Implementation: Integration

FI 10. Integration overview

10.1. Describe your approach to integrating ESG into traditional financial analysis.

We do not convert our evaluation of ESG factors into figures lending themselves to quantitative treatment (like e.g. a discount rate premium). It does, however, affect our judgement of the figures and estimates at hand. For instance, ESG questions often represent risk factors of possible financial importance. Do note, though, that ESG risks/exposure may have an impact on the coupon of the bond. In that case, we will have to weigh the coupon effect against the underlying ESG risk or fix thereof.

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

Corporate (financial)

In general, the range of relevant ESG factors is narrower for financial investments. A typical issue would be corporate governance.

Corporate (non-financial)

In general, environmental factors are relatively more important when discussing non-financial investments.

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)
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]

Continuous checks according to ecolabeling commitments.


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

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

Corporate (financial)

For financial companies, the G factors dominate. Voting rules, loan covenants, procedures for aligning different capital providers and stakeholders, such points are systematically reviewed before investing. 

 

Corporate (non-financial)

Again, for non-financial companies, the range of relevant ESG issues is much wider.

Environmental

  • Climate change
  • Pollution
  • Severe environmental damage

Social

  • Labor standards
  • Human rights
  • Conflict regions

Governance

  • Board composition
  • Executive compensation
  • Shareholders right

Inasmuch as in particular the domestic investment universe is limited, we often have very good prior knowledge of the companies under investigation. For foreign investments, more effort is required. The portfolio managers can no longer ask the ethics committee to undertake the initial investigation (see below).

 

12.3. Additional information.[OPTIONAL]

For both financial and non-financial investments, the portfolio managers have an explicit responsibility to identify and evaluate possible ESG issues (whereas, in the past, they would typically consult the ethics committee). 


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