ESG Integration – Bonds

Engagement for fixed income assets is necessarily different than for equities because it is not possible to express disapproval at general meetings for fixed income assets.  

•  In advance of a decision to purchase a bond the investment team will consider the credit worthiness of the issuer assessed by external data vendors and will further assess the relative value offered by the bond in question represented by its yield against other bonds of a similar duration and credit worthiness and other bonds of a similar duration that have better credit quality.

•  The purpose of this exercise is to create a portfolio which balances the need of investors for a yield in excess of that available from cash and other similar sources against the risk of potential default by the acquired bonds.

In addition to credit quality and other more granular considerations such as the quality of the covenant on the bond, the investment team are  adopting the following approach to ESG in their day to day processes:

•  Review the ESG status of the issuing companies of the existing bonds held in the portfolios utilising data provided by data vendors such as Bloomberg and using this information to calculate a blended ESG rating for the portfolios as a whole.

•  In future, as part of their consideration of potential new acquisitions as well as the usual financial considerations, the investment team will also carry out a review of the ESG status of the underlying issuing company with the objective that over the longer term they will progressively elevate the blended ESG rating of the portfolios as a whole.

•  The investment team will continue to engage issuing companies through ‘corporate actions’ such as repurchase offers, exchanges of instruments and changes to underlying covenants of the issues we hold.

•  Where possible we will leverage our position as a holder of equity to  influence an issuing company.

The growth in  the sustainable bond market is increasingly highlighting the importance of  ESG considerations  to bond investors, with companies ranked more highly in sustainability indices often attracting narrower spreads.