Capitalizing on the moment: Nine ways new ESG reporting rules can help investors
PGIM’s global head of ESG offers ideas for a regulatory framework to bring clarity to investors.
ESG Investing
WHAT'S YOUR INVESTMENT GOAL AND STRATEGY?
Environmental, Social and Governance (ESG) investing means different things to different people. As investors look to diversify their portfolios with responsible and sustainable investments, they require more than one-size-fits-all strategies to meet their evolving needs, and shouldn’t be faced with compromised returns. While there is no “right way” to approach ESG investing, we actively manage for ESG opportunities and risks, positioning our clients for success in the long term.
Better Outcomes For All Stakeholders
At PGIM, we believe that doing the right thing for our clients, our people and our communities leads to better results for all stakeholders. We approach responsible investing in a manner that is consistent with Prudential Financial Inc.'s (PFI's) long-term commitment to sustainability. And, as active investors, we strive to embed ESG best practices throughout our investment, risk and talent management processes, while delivering investment performance and staying true to our role as a fiduciary and risk manager.
ACTIVE APPROACH
As a leading global active manager, we recognize the importance of integrating ESG best practices into our global investment processes. We take a holistic approach to ESG investing and are committed to helping our global clients meet their business and environmental objectives.
EXPERIENCED MANAGERS
The detailed application of ESG principles sits within each of our autonomous businesses. With a deep expertise across public and private markets, we help our clients understand how ESG investments can serve as a driver for desirable outcomes and returns. By tapping into the capabilities of our global affiliates, we customize investment solutions that meet the unique ESG needs of our clients.
CLIENT FOCUSED, LONG-TERM VIEW
Emphasizing a customizable, client-driven approach, paired with a long-term perspective, PGIM employs a robust and transparent ESG investing process. We strive to deliver sustainable business and environmental solutions, and continue to broaden our ESG product offerings, creating better outcomes for our clients in the long term.
2023 PGIM ESG Investing Report
From protecting real estate assets from rising tides, to intensive scrutiny of bond issuers’ risk management practices, PGIM’s ESG investing report provides a comprehensive view of how PGIM incorporates environmental, social and governance factors into our investment processes. Using real life examples drawn from our investment portfolios, the report demonstrates how each of our autonomous asset management businesses has developed asset-class specific ESG approaches, analytical frameworks and research capabilities to identify investment risks and opportunities arising from our rapidly changing world, with the goal of providing transparency around our actions as fiduciaries for our clients.
A SUSTAINABLE FOUNDATION
PGIM’s strong foundation was built on delivering financial returns and making a positive impact on the world, and began over 145 years ago. Our parent company, PFI, is committed to solving the financial challenges of our changing world and is a recognized leader in purpose-driven business, investing and ESG practices.
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ESG Fundamentals
Making sense out of ESG can be hard—even for professional investors. A lack of clarity has led to many issues investors and companies are navigating today, from greenwashing to regulatory uncertainty. Within this rapidly evolving environment, a basic understanding of what ESG means in an investment context is absolutely essential for all investors. PGIM’s ESG Fundamentals will help explain the world of ESG—not a philosophy, product or trend, but a powerful and useful investment tool that can be applied to serve different purposes.
Featured Insights
PGIM Investments launches third ESG bond fund
Firm continues to build ESG product suite with a focus on flagship fixed income mutual funds.
PGIM continues commitment to ESG with newly created global head of ESG role
PGIM has appointed Eugenia Unanyants-Jackson to the newly created role of global head of ESG, responsible for shaping ESG strategy and approach across the firm.
Past Insights to Navigate the Transition
The Journey to Net Zero
For policymakers and investors, the duality of greenflation and the green asset premium lies at the heart of the zero-carbon transition.
Weathering Climate Change
Exposing the hidden portfolio vulnerabilities and potential opportunities in the transition to a lower-carbon world.
2° of Change
How institutional investors can navigate the far-reaching impact of the rapidly changing climate.
INTEGRATING ESG ACROSS ASSET CLASSES
Evaluating ESG Investments and Supporting Client Interests
At Jennison Associates, our primary objective is to generate superior long-term performance for our clients with integrity and in accordance with our fiduciary responsibility. Because we believe ESG factors can materially affect the long-term success of a company and the returns of its securities, we integrate the assessment of ESG considerations in the fundamental research that informs all our investment decisions.
Fundamental Research is the cornerstone of our process. Research conducted by our investment professionals across the range of equity and fixed income strategies we manage is the source of investment ideas. Our investment professionals conduct deep fundamental research to identify compelling investment opportunities. They seek to determine company, industry, and sector fundamentals and prospects over short and longer terms, projecting how industries and businesses will change over time. When conducting the fundamental research necessary to build financial estimates for individual companies, we consider the potential risks and opportunities of various factors, including ESG factors, assessing their materiality in affecting a company’s financial prospects or business model.
Engagement: During the course of a typical year, our investment professionals engage with thousands of company managements on a variety of topics, including ESG issues. As active investors, we seek to build constructive long-term relationships with companies’ management teams and their boards.
Proxy Voting policies and guidelines have been developed with issues such as ESG in mind. Jennison Associates participates in all proxy votes in a manner consistent with our fiduciary responsibilities, seeking to vote in alignment with our clients’ best economic interests over the long term.
ESG Investments for Every Risk and Return Budget
PGIM Quantitative Solutions’ approach to integrating ESG in our investment portfolios is intended to address the challenges facing the responsible investor, without compromising long-term risk mitigation or expected returns. As a diversified multi-factor equity manager, we employ various tools that enable us to seek alternatives for investments where ESG exposure may be problematic.
Aligned with a client-first approach to investing, we developed a comprehensive ESG framework that evaluates, expands and integrates ESG insights to solve a variety of problems facing responsible investors with different risk budgets, sustainability objectives and interests. Our ESG framework can be applied to investment strategies across the active risk-return spectrum.
Our commitment to delivering better ESG outcomes to our clients is highlighted through our participation in the Council of Institutional Investors (CII), International Corporate Governance Network (ICGN), Sustainability Accounting Standards Board (SASB), and Investor Advisory Group (IAG). We also adhere to the Task Force on Climate-Related Financial Disclosures and Japan’s Stewardship Code. As a responsible investor, PGIM Quantitative Solutions advocates for accountability across the investment community. Our approach to ESG investing is continually evolving, as we embrace new data, insights and techniques.
Identifying Sustainable, Long-Term Competitive Advantages
At PGIM Fixed Income, we recognize the importance of integrating ESG factors into our global investment research assessment and decision-making process. We consider relevant ESG factors in our investment process to work toward our ultimate fiduciary duty—searching for the highest risk-adjusted returns for our clients.
We are committed to a substantive and fully integrated approach to ESG investing. PGIM Fixed Income is aligned with the world’s leading proponents of responsible and sustainable investing, and implements the Principles of the UN Global Compact (UNGC) and the UN Sustainable Development Goals (SDGs) to help our clients achieve ESG objectives that may have a lasting impact on our global society. We also established the PGIM Fixed Income ESG Committee to act as the governing body for directing and overseeing all of our ESG-related activities, including:
- Appointing a Head of ESG Research, reporting to the Head of Credit and supported by a new team of investment specialists
- Developing a new framework where Fundamental Analysts assign internal ESG ratings and a new methodology that incorporates one ESG rating scale for all issuers
- Expanding policies and procedures that integrate ESG factors into the PGIM Fixed Income investment process
- Instituting and maintaining guidelines for ESG-related funds managed by PGIM Fixed Income
Building Better Outcomes
At PGIM Real Estate, we strive to embed ESG best practices throughout our real estate investment, asset management, risk management and talent management processes. We embrace corporate responsibility, fairness and transparency as we work to meet the needs of our global clients, and bring the E, S and G of responsible investing to life.
Environmental: Our responsible resource reduction strategies enhance environmental and investment performance for our clients. Focusing on waste prevention and preserving natural resources, we advocate for operating practices and construction methods that: 1. protect human health and preserve biodiversity; 2. increase the use of sustainable materials and renewable energy; and 3. reduce waste and CO₂ emissions.
Social: In addition to corporate grants and charitable contributions, we empower our employees to volunteer their time and skills to initiatives that align with their interests, and increase human potential, self-sufficiency, and diversity and inclusion. With a commitment to our communities and a long-term approach to ESG investing, we’ve invested over $5 billion of equity across 146 properties with impact components since 2010.
Governance: ESG issues are foundational to our investment analysis and due diligence processes, which include a rigorous underwriting regimen, risk management evaluation and approval procedures. Our ESG Policy guides our ESG-related objectives, and we report ESG fund performance to our investors on an annual basis.
Socially Responsible Investing: Renewable Energy, Education and Transportation Infrastructure
For over 80 years, PGIM Private Capital’s investment approach has been defined by thoughtful analysis, long-term thinking and strong relationships. We believe that integrating ESG factors into our investment process is a fundamental part of generating attractive risk-adjusted returns for our clients.
As a long-term investor, our expected holding period for most investments is 10 years or more, and we have had the good fortune of maintaining continuous investment relationships with many businesses and institutions extending over several decades. This has required an investment approach oriented around sustainable practices. Our long and pioneering history investing in the renewable energy, education, and transportation infrastructure sectors (among others) has been underpinned by thoughtful consideration of ESG factors. As of year-end 2019, our AUM included over $6.8 billion invested across socially responsible sectors.
Regular engagement with companies in our investment portfolios has always been a critical part of our investment process. As a relationship-based investor, we strive to cultivate active dialogue with the companies and institutions in which we invest and meet face-to-face with most companies several times each year. We engage with companies regarding their ESG practices because we believe it is in those companies’ long-term interests to be responsible corporate citizens.