BlueBay believes that ESG factors can potentially have a material impact on an issuer’s long-term financial performance. Given the limited upside (and potentially significant downside) of fixed income investments, the focus of our ESG analysis is on understanding downside risks.
Poorly-managed ESG risks can lead to inefficiencies, operational disruption, litigation and reputational damage, which may ultimately impact an issuer’s ability to meet their financial responsibilities. Supplementing traditional financial analysis by reviewing ESG-related management practices and performance is therefore not only prudent but also in line with BlueBay’s fiduciary duty to optimise investor returns.
Policy and Implementation
BlueBay has adopted a number of ESG investment risk management related policies:
- ESG Investment Policy
- Controversial Weapons Investment Policy
- Proxy Voting Policy
- Statement on UK Stewardship Code
- Statement on UK Modern Slavery Act
Whilst BlueBay’s investment process has always, to some degree, taken into account ESG-related risk factors in the decision-making process, during 2013 the firm initiated efforts to more systematically incorporate them into the process. BlueBay became a signatory of the United Nations (UN)-supported Principles for Responsible Investments (PRI) in July 2013, a global voluntary initiative focused on the investment industry, whose signatories have committed to integrating ESG factors into investment processes.
In framing our ESG investment management approach we have differentiated between ESG ‘components’ applied by BlueBay either at a firm- and fund/strategy-level. With fund/strategy-level being an umbrella term we are using to refer to individual investment strategies (i.e. pooled ‘Funds’) and segregated managed mandates, SMAs). It is important to note that ESG components are not mutually exclusive, and they will typically be used in combination with one another. Furthermore, some ESG components can be adopted at both a firm and fund/strategy level: where firm-level refers to its adoption as a firm-wide policy, and fund/strategy-level, where the practical application of that ESG component may differ for specific funds, mandates or strategies.
Firm-level ESG Components:
Fund-level ESG components:
Notes: 1 This refers to the BlueBay Luxembourg, Cayman Island, and Dublin domiciled funds; 2 This applies to funds which invests in corporate issuers, and refers to the firm wide controversial weapons exclusion; 3 The specific criteria varies depending on whether the funds invests in corporates and/or sovereign issuers. 4 This is a discretionary service available for clients on a case by case basis.
*BlueBay has embedded stewardship principles into its investment process, but has not been a signatory to the 2012 UK Stewardship Code. We have a pending application to become a UK Stewardship Code 2020 signatory which is currently under consideration by the FRC
We focus our efforts with regards to both:
- New investments (pre-investments), and
- Existing investments (post-investment)
Incorporation of ESG factors occurs on many different levels:
- Issuer level, in terms of credit analysis e.g. what is BlueBay’s ESG risk exposure on an individual issuer by issuer level? Do we have exposure to (corporate) issuers with the most severe ESG controversy exposure?
- Sector level, as part of the issuer analysis e.g. what are the material ESG risks for certain industries/sectors, and to what degree are there common ESG risks across sectors?
- Portfolio level, in terms of portfolio characteristics e.g. what is the ESG investment risk exposures at a fund level? and at the;
- Group level, in terms of oversight of ESG risks across BlueBay’s portfolio strategies e.g. what is BlueBay’s ESG investment risk exposure across all the investment desks?
As part of our membership of the UN-supported PRI, we participate in an annual Reporting and Assessment procedure, and receive a report on how well we have performed in terms of ESG integration within our investment process. We believe the PRI reporting and assessment framework can be a useful independent benchmark for our efforts.
The table below summarizes our performance as assessed by the PRI over the last 3 years.