Below you will find some of the most commonly asked questions we have come across on our ESG investment risk management approach.
Brief answers have been provided, with links to the relevant pages on our website for more detailed information.
Environmental, Social and Governance (ESG) analysis is the incorporation of extra-financial factors relating to aspects of an issuer’s operations which influence its ability to meet its financial obligations. Examples of ESG investment risk factors include:
Environmental: climate change potentially raises the risk of natural commodities like oil & gas, or coal being ‘stranded’ due to regulation which prevents them from being developed commercially
Social: unethical and unsafe employee or supply chain practices can pose a potential operational or security of supply risk for retailers and manufacturers if a supplier's facilities are shut down or impacted by accidents
Governance: lack of appropriate board oversight and decision-making structures can undermine investor confidence in management
BlueBay believes ESG factors can potentially have a material impact on an issuer’s long-term financial performance and 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.
Yes, since July 2013, we have had a formal ESG Investment Risk policy which outlines our policy and approach to addressing ESG risk factors in our investment process. There have been updates made to this since.
Our ESG investment management framework applies across all the funds we manage. Our approach combines a number of complementary ESG investment strategies.
Refer to our ‘Approach and Performance’ page for details on this.
Yes, in February 2017, we launched our first ESG-labelled ESG pooled fund in the global high yield asset class. Whilst our conventional funds have a predominantly value-focused approach which focuses on investment material ESG factors, this fund has a values-driven emphasis.
Yes, we apply an ESG exclusionary screening investment strategy for all BlueBay pooled funds. We have a Controversial Weapons Investment policy which outlines our approach in detail.
BlueBay believes that providers of debt do have a role in engaging with issuers on matters with the potential to impact investment returns. Given BlueBay’s approach of not automatically excluding issuers from investment based on their ESG performance, actions to mitigate such risks are raised with investments teams where appropriate.
Where ESG engagement is deemed necessary, this will be prioritised using a risk-based approach. This means focusing on material ESG risks facing the issuer and their specific ESG score, as well as the size of our investments (and whether it is a long-term position). In general, the aim of any ESG engagement will be to generate additional insights into the issuer and/or to facilitate change with a specific request, all of which will better inform our investment decisions.
However, client expectations of the scale and effectiveness of such engagement should be made in recognition of the fact that as debt investors, we are not owners and as such have limited legal mechanisms for influencing issuers. Furthermore, trying to engage a non-corporate issuer such as a sovereign is potentially more challenging than influencing a company. In recognition of this, BlueBay will continue to review the best ways of carrying out ESG engagement to maximise impact and use of resources, including partnering and collaborating with other investors and stakeholders.
Beyond issuer level ESG engagement, we also conduct such activities at a sector, thematic/issue, or industry level.
Given our focus on fixed income investing, we have limited scope for participating in proxy voting. However, it can occur, for instance with Convertible Bond and High Yield bond investments, where our investment may take on an equity element, making us shareowners with formal voting rights. In such cases we will ensure that we make appropriate use of our voting rights on matters of corporate governance (CG) and corporate responsibility (CR).
Responsibility for BlueBay’s ESG investment risk management efforts resides with our dedicated in-house ESG investment function which works with our investment teams on incorporating ESG factors into investment activities. Part of the Investment Risk function, the team has operational independence from investment teams.
The Head of ESG Investment Risk reports to the Head of Investment Risk & Performance – Attribution. There is oversight provided by the Market Risk Committee.
Yes, we publish an annual ESG investment report which provides highlights on our activities over calendar year. We also produce a bi-annual ESG Investment Review for investors in the BlueBay Global High Yield ESG Bond Fund.
From time to time, we also write ESG articles sharing our thinking and practice on ESG in fixed income investing.
BlueBay also provides ESG reporting for clients in our segregated accounts, both on a portfolio level, and on a more general, firm-wide basis in terms of the ESG activities conducted. This occurs on a quarterly basis.
Refer to the document library for more details on these.
Yes, the ESG Investment Risk policy applies for all BlueBay funds. However, how we implement this for direct lending strategies differs to that used for our conventional fixed income strategies. This difference reflects the unique characteristics of the private loans market, as well as its ESG characteristics.
BlueBay is committed to operating its business in a socially responsible and environmentally sustainable manner. For information about how we do this, please refer to our Corporate Responsibility section.
Yes, Royal Bank of Canada (RBC) has a long-standing approach to corporate responsibility and has been developing its responsible investment/ESG investment activities.
Visit the RBC website for more information about its approach to Corporate Responsibility and the RBC GAM website for details on Responsible Investment.