ESG Investing

ESG Philosophy and Approach

As a fundamental research-focused active manager, PGIM Fixed Income recognizes the importance of integrating environmental, social and governance factors in our global investment research, decision making and portfolio management. We consider relevant ESG factors in our investment process to work toward our ultimate fiduciary duty. The core tenets of our ESG philosophy and approach are as follows:

• We believe that ESG factors can impact investment performance, and we therefore integrate relevant, credit-material factors into credit analysis – which is then incorporated into our relative value assessment –across all of our credit strategies.
• For an effective relative value process, we believe credit risk cannot be disaggregated into individual components and must be assessed holistically. Our credit ratings incorporate analysis of credit-material risks and opportunities arising from ESG factors, alongside other credit risk factors, to reflect our overall fundamental credit view of the issuer. This is done for all credit strategies that we manage and is consistent with our fiduciary obligations.
• Separately, we have observed that an issuer’s ESG impact on the environment and society does not always create material credit risks for that issuer, even when those ESG impacts are significant. Our proprietary ESG Impact Ratings assess negative and positive impacts of issuers on the environment and society—irrespective of credit materiality—and determine their eligibility for investment by our ESG strategies. We offer clients the choice (but not the obligation) to apply this additional “impact” lens to their portfolios.
• We believe our 100+ fundamental research analysts, economists and ESG specialists are well placed to analyse an issuer’s ESG characteristics, and as such we conduct our own ESG research as part of credit analysis. We have also developed ESG Impact Ratings (as later defined) as a proprietary tool to help our clients invest in line with their ESG/sustainability preferences.
• We see issuer engagement as an important tool in our investment process insofar as it helps us gain a more holistic understanding of the issuers, from both the fundamental credit and ESG impact perspectives. We believe that this, in turn, helps us achieve better investment and, where applicable, ESG outcomes for our clients and investors. As a result, our analysts are encouraged to initiate discussions with issuers should an ESG issue surface during the research process, provided that in all cases, they engage only where this would be consistent with our fiduciary duties to all clients.. We disclose our ESG Impact Ratings to issuers when requested, as we see that these ratings and other ESG tools and analysis provide tangible feedback to issuers.
• As a signatory to the Principles of Responsible Investment (PRI) since February 2015, we are committed to implementing the PRI.
• PGIM Fixed Income has been a signatory of the UK Stewardship Code since 2022. We believe that the 12 Principles laid out by the UK Stewardship Code set a high standard for responsible stewardship, and we seek to disclose the relevant information necessary to maintain our signatory status on an annual basis.

All investments involve risk, including the possible loss of capital. The value of investments can go down as well as up. For illustrative purposes only. There is no guarantee that these objectives will be met. The targeted excess returns are based on gross performance returns, unless otherwise noted, which do not reflect the deduction of investment advisory fees or other expenses. This information is delivered solely as reference material with respect to investment products that PGIM Fixed Income may offer in the future. PGIM Fixed Income is under no obligation to offer any such product. All strategy terms are subject to significant change without notice.