“There are three very simple reasons why we take ESG seriously – to minimize risk, to improve the quality of our returns, and to fulfill our fiduciary duty to our investors” – Mike Quinn, Chief Investment Officer
Our commitment to ESG is a commitment to three things:
- We incorporate ESG factors in our investment process.
- We engage issuers on ESG matters.
- We advance ESG through peer collaboration and public action
When analyzing the ESG profile of a company we look at both quantitative and qualitative factors. Our proprietary quantitative ESG scores are produced by combining four third party scores (Sustainalytics, Bloomberg, CDP and ISS Governance) alongside our own 15-factor quantitative score. This analysis is then supplemented by qualitative information gleaned from discussions with management teams, company disclosures / management notes and the subjective judgement of our credit analysts. Both quantitative and qualitative ESG analysis is conducted prior to investing in a new issuer. After initial investment our ESG scores are updated and monitored on a weekly basis for all portfolio holdings alongside the normal credit monitoring conducted by our research team. This combined quantitative and qualitative framework allows us to dynamically track how an issuer’s ESG scores and fundamentals change over time and how they compare relative to peers in similar industries. Any subsequent ESG risks are flagged in our Credit Memorandums, and are discussed in our weekly Portfolio Management and Credit Research meetings. Responsibility for overseeing implementation of the ESG framework lies with Mike Quinn (Chief Investment Officer).
We believe bondholder engagement is critical to properly understanding the risk-reward profile of the issuer. As such, we actively engage in ESG dialogue with the companies we are analyzing and/or investing in. This can take the form of in-person meetings with management, conference calls and other correspondence. Engagement with issuers is a critical factor in effecting change. Although bondholders don’t have the same power to effect change that equity holders have through their proxy voting rights, it is still possible for bondholders to engage and guide issuers given the importance of debt financing to many companies.
The final element of our framework is a commitment to advance knowledge and understanding of ESG through engagement with peers and the broader investment community. As part of this commitment, we have participated in several round-table events and conferences to discuss ESG issues impacting the investing community and capital markets.