Stewardship And ESG Integration
Our approach to investing is driven by a commitment to providing the best possible outcomes over the long term for our clients.
Our analysis of countries focuses on six factors, which, in our experience, have the ability to explain changes in country spreads. These are: politics, structural reform, fiscal policy, monetary policy, the external sector and technicals. Three of these factors are intimately related to RI and stewardship: fiscal policy, politics, and structural reform.
Assessment and monitoring
ESG issues are identified and considered in the course of the team's investment analysis. At the core of the process is the Key Factor Model, which comprises six factors, from which we approach the analysis of the issues in our investment universe.
In order to support our monitoring and assessment efforts we have compiled a database with a number of relevant indices for ESG. The database gives us an overview of how countries compare with each other and how they track over time. This information helps us monitor the countries we invest in, in a systematic fashion and also contributes in our assessment of ESG considerations.
Namely, for each country that we invest in, we monitor six variables: human development, corruption, business environment, institutional strength, government effectiveness and energy dependence. We utilise indices provided by reputable sources including the World Bank, the United Nations Development Program, Transparency International, the Fund for Peace and the World Energy Council.
For these indices, we analyse levels, rankings and trends over time, providing us with objective measures to support our research.
Our approach to ESG is defined by integration. ESG considerations are embedded in the Key Factor Model, alongside macroeconomic data, political developments, policy-making assessment (fiscal and monetary) and market technical aspects. As such, they are sources of risk and drivers of return that we take into account when conducting our research efforts.
As part of our country research efforts, we meet key decision-makers when they are in London (on roadshows or presentation) and we take field trips to get first-hand impressions of events on the ground. It is on these occasions that we have the opportunity to engage and to raise those issues, including ESG-related, that we deem relevant from our viewpoint. In the overwhelming majority of cases, authorities have been very receptive and constructive engagements have taken place.
We recognise the evolving nature of RI and stewardship for fixed income investments and, in particular, for sovereign issuers. In order to develop our own understanding, as well as to contribute to improvements in industry practice, we have been involved in the United Nations Environmental Program Finance Initiatives E-RISC project phase 2, which is developing methods for investors to incorporate environmental factors into the risk assessment of sovereign issuers.
Furthermore, as of January 2017 Manuel has joined the United Nations Principles for Responsible Investment Fixed Income Advisory Committee.
"ESG issues are identified and considered in the course of the team's investment analysis. At the core of the process is the Key Factor Model."
"For each country that we invest in, we monitor six variables: human development, corruption, business environment, institutional strength, government effectiveness and energy dependence."
"In order to develop our own understanding, as well as to contribute to improvements in industry practice, we have been involved in the United Nations Environmental Program Finance Initiatives E-RISC project phase 2"