ESG integration in credit research

Integrating ESG factors into the research process due to risk-return considerations;
Engaging actively with company management when it makes sense to better understand risks and to push for ESG progresses;
Monitoring companies with potentially high ESG risk;
Excluding highly controversial companies;

Process:

1. ESG Awareness

Companies are researched discretionary on the basis of publicly available information, company disclosures and third-party research (e.g., MSCI ESG or JSS).

2. ESG Integration

The analyst assesses the impact of ESG issues (sector-dependent key issues, such as CO2 emissions, biodiversity & land use, product safety & quality, health & safety, labour management, corporate governance and corruption & instability), on the company’s business risk, regulatory risk, cashflow stability and valuation (i.e., whether it is trading at a premium or discount to its peers).

3. ESG Assessment

The analyst assigns an absolute rating to the issuer with regards to ESG risks. He classifies the company as “low risk”, “medium risk” or “high risk”. This classification is part of the relative value assessment.

4. ESG Engagement

In the event of heightened ESG risks that are of material importance for our investment decision, the analyst seeks out a dialogue with the company. We do this with the intention of improving the company’s ESG guidelines, in order to reduce risk. The analyst monitors and documents whether the company has undertaken the necessary steps to address the issues that have been raised.

5. Exclusion

When the analyst is of the view that management is not prepared to address and mitigate the key ESG risks that have been identified, that it is still difficult to evaluate risk, and/or that governance remains systematically weak or is worsening, he may request the ESG committee to exclude the company from our investment universe, which is also subject to Executive Committee approval.

Investment universe for our sustainable global convertible bond fund

The portfolio is constructed primarily out of convertible bonds with a high security score and a positive sustainability rating of the Bank J. Safra Sarasin. A maximum of 10% of the portfolio assets may be invested in securities that have not been rated (yet) by Bank J. Safra Sarasin. Also a maximum of 10% of the assets may be invested in non-sustainably rated convertible bonds. The former restriction gives the portfolio manager a temporary leeway to invest in not yet rated newly issued convertibles, which are considered as attractive. The second restriction allows the portfolio manager to optimally sell the security with a minimum market impact in the case of a sustainability rating downgrade to negative.

ESG integration in credit research

Integrating ESG factors into the research process due to risk-return considerations;
Engaging actively with company management when it makes sense to better understand risks and to push for ESG progresses;
Monitoring companies with potentially high ESG risk;
Excluding highly controversial companies;

Process:

1. ESG Awareness

Companies are researched discretionary on the basis of publicly available information, company disclosures and third-party research (e.g., MSCI ESG or JSS).

2. ESG Integration

The analyst assesses the impact of ESG issues (sector-dependent key issues, such as CO2 emissions, biodiversity & land use, product safety & quality, health & safety, labour management, corporate governance and corruption & instability), on the company’s business risk, regulatory risk, cashflow stability and valuation (i.e., whether it is trading at a premium or discount to its peers).

3. ESG Assessment

The analyst assigns an absolute rating to the issuer with regards to ESG risks. He classifies the company as “low risk”, “medium risk” or “high risk”. This classification is part of the relative value assessment.

4. ESG Engagement

In the event of heightened ESG risks that are of material importance for our investment decision, the analyst seeks out a dialogue with the company. We do this with the intention of improving the company’s ESG guidelines, in order to reduce risk. The analyst monitors and documents whether the company has undertaken the necessary steps to address the issues that have been raised.

5. Exclusion

When the analyst is of the view that management is not prepared to address and mitigate the key ESG risks that have been identified, that it is still difficult to evaluate risk, and/or that governance remains systematically weak or is worsening, he may request the ESG committee to exclude the company from our investment universe, which is also subject to Executive Committee approval.

Investment universe for our sustainable global convertible bond fund

The portfolio is constructed primarily out of convertible bonds with a high security score and a positive sustainability rating of the Bank J. Safra Sarasin. A maximum of 10% of the portfolio assets may be invested in securities that have not been rated (yet) by Bank J. Safra Sarasin. Also a maximum of 10% of the assets may be invested in non-sustainably rated convertible bonds. The former restriction gives the portfolio manager a temporary leeway to invest in not yet rated newly issued convertibles, which are considered as attractive. The second restriction allows the portfolio manager to optimally sell the security with a minimum market impact in the case of a sustainability rating downgrade to negative.

ESG integration in credit research

Integrating ESG factors into the research process due to risk-return considerations;
Engaging actively with company management when it makes sense to better understand risks and to push for ESG progresses;
Monitoring companies with potentially high ESG risk;
Excluding highly controversial companies;

Process:

1. ESG Awareness

Companies are researched discretionary on the basis of publicly available information, company disclosures and third-party research (e.g., MSCI ESG or JSS).

2. ESG Integration

The analyst assesses the impact of ESG issues (sector-dependent key issues, such as CO2 emissions, biodiversity & land use, product safety & quality, health & safety, labour management, corporate governance and corruption & instability), on the company’s business risk, regulatory risk, cashflow stability and valuation (i.e., whether it is trading at a premium or discount to its peers).

3. ESG Assessment

The analyst assigns an absolute rating to the issuer with regards to ESG risks. He classifies the company as “low risk”, “medium risk” or “high risk”. This classification is part of the relative value assessment.

4. ESG Engagement

In the event of heightened ESG risks that are of material importance for our investment decision, the analyst seeks out a dialogue with the company. We do this with the intention of improving the company’s ESG guidelines, in order to reduce risk. The analyst monitors and documents whether the company has undertaken the necessary steps to address the issues that have been raised.

5. Exclusion

When the analyst is of the view that management is not prepared to address and mitigate the key ESG risks that have been identified, that it is still difficult to evaluate risk, and/or that governance remains systematically weak or is worsening, he may request the ESG committee to exclude the company from our investment universe, which is also subject to Executive Committee approval.

Investment universe for our sustainable global convertible bond fund

The portfolio is constructed primarily out of convertible bonds with a high security score and a positive sustainability rating of the Bank J. Safra Sarasin. A maximum of 10% of the portfolio assets may be invested in securities that have not been rated (yet) by Bank J. Safra Sarasin. Also a maximum of 10% of the assets may be invested in non-sustainably rated convertible bonds. The former restriction gives the portfolio manager a temporary leeway to invest in not yet rated newly issued convertibles, which are considered as attractive. The second restriction allows the portfolio manager to optimally sell the security with a minimum market impact in the case of a sustainability rating downgrade to negative.

ESG is not a separate part of the investment process but is integrated within our fundamental research process. We are analysing qualitative information of individual issuers, evaluating ESG strengths and weaknesses rather than looking at ESG scores available from the third party provider. We build our own knowledge base and evaluation method and view external ESG research like any other public information of research. Governance is an extremely important topic for us as without strong corporate governance, our trust that a company will meet its obligations is extremely limited. Furthermore reputational risks (controversies) in terms of labor or environmental issuers can also have a significant impact on an issuer’s financial risk profile and refinancing capability and are consequently an integral part of our investment analysis.

We determine how much of a risk ESG factors pose to the company and if those issues justify a higher risk premium versus its peer group and how this will affect our relative value recommendation. We expect the issuers in which we invest to follow best practices on their own and to be well positioned to refinance and service their debts. Each company within our coverage is ESG reviewed at least yearly.

ESG is not a separate part of the investment process but is integrated within our fundamental research process. We are analysing qualitative information of individual issuers, evaluating ESG strengths and weaknesses rather than looking at ESG scores available from the third party provider. We build our own knowledge base and evaluation method and view external ESG research like any other public information of research. Governance is an extremely important topic for us as without strong corporate governance, our trust that a company will meet its obligations is extremely limited. Furthermore reputational risks (controversies) in terms of labor or environmental issuers can also have a significant impact on an issuer’s financial risk profile and refinancing capability and are consequently an integral part of our investment analysis.

We determine how much of a risk ESG factors pose to the company and if those issues justify a higher risk premium versus its peer group and how this will affect our relative value recommendation. We expect the issuers in which we invest to follow best practices on their own and to be well positioned to refinance and service their debts. Each company within our coverage is ESG reviewed at least yearly.

ESG is not a separate part of the investment process but is integrated within our fundamental research process. We are analysing qualitative information of individual issuers, evaluating ESG strengths and weaknesses rather than looking at ESG scores available from the third party provider. We build our own knowledge base and evaluation method and view external ESG research like any other public information of research. Governance is an extremely important topic for us as without strong corporate governance, our trust that a company will meet its obligations is extremely limited. Furthermore reputational risks (controversies) in terms of labor or environmental issuers can also have a significant impact on an issuer’s financial risk profile and refinancing capability and are consequently an integral part of our investment analysis.

We determine how much of a risk ESG factors pose to the company and if those issues justify a higher risk premium versus its peer group and how this will affect our relative value recommendation. We expect the issuers in which we invest to follow best practices on their own and to be well positioned to refinance and service their debts. Each company within our coverage is ESG reviewed at least yearly.