ESG InvestingESGInvesting

ESG Philosophy and Approach

• We believe that ESG factors impact the performance of investment portfolios, and we have integrated them into our investment analysis and decision-making processes for all traditional and ESG strategies.
• We assess ESG factors for all issuers that we cover, across all asset classes
• We believe that fully analyzing credit-material ESG factors leads to higher risk adjusted excess returns. We consider this critical to our fiduciary duty for all traditional and ESG strategies.
• We believe our 100+ fundamental research analysts and ESG specialists are best placed to analyze an issuer’s ESG characteristics, and as such we conduct our own ESG research and risks assessment as part of credit analysis, and have developed ESG impact ratings as a proprietary tool to help our clients invest in line with their ESG/sustainability preferences.
• Our Credit Ratings incorporate analysis of credit material risks and opportunities arising from ESG factors and reflect our overall fundamental credit view of the Issuer.
• Our ESG impact ratings assess negative and positive impacts of the Issuers on the environment and society, and serve to determine the eligibility of the Issuer/Issue for investment by our ESG strategies.
• We use issuer engagement to communicate our views on fundamental and ESG issues, in addition to informing our ratings of the issuers. We believe in disclosing our ESG impact ratings to Issuers, pointing out the potential increased funding cost for Issuers who lag peers on ESG and noting the potential impact on future market demand for their new issue bonds.
• As a signatory to the Principles of Responsible Investment (PRI) since February 2015, we are committed to implementing the Principles, where consistent with our fiduciary responsibilities​.

Helping Investors Achieve Their Goals

We believe that providing investors with an explicit choice between Traditional and ESG strategies will help them express their policies, views, and beliefs through their investments.

PGIM Fixed Income's Proprietary ESG Rating Scale

• PGIM Fixed Income maintains a proprietary ESG ratings framework, where every issuer across all fixed income sectors is given an ESG rating in addition to a fundamental credit rating.
• More than 100 analysts assign ESG ratings based on a 100-point scale in five-point increments, with zero as the lowest and 100 as the highest. Ratings are assigned to all issuers (Corporate, Muni, Securitized, Sovereigns) in which we invest.
• PGIM Fixed Income’s ESG Committee provides guidance to the analysts on the relative ESG ratings ranges for each industry. Analysts rank issuers based on the materiality of the ESG issues and assign an ESG rating.
• A comprehensive set of ESG variables tailored specifically to corporate industries, sovereigns, and securitized products are considered; some carrying higher weights than others. Analysts rely on both proprietary and third-party vendors to derive an ESG rating.
• Each sub-sector on our ESG ratings scale has a range. Within these ranges all ratings are disseminated across the range in varying percentages based on the fundamental assessment.

A Collaboration Between Credit and ESG Specialists

• Governance and guidance are provided by ESG Research team and the ESG Committee.
• The ESG Research specialists and credit analysts collaborate, with the ESG Research specialists advising the credit analysts.
• The ESG Impact Rating is the responsibility of the credit analyst.
• The ESG Research team will challenge ESG Impact Ratings and investment decisions where ESG issues are material considerations.
• The ESG committee can overrule the credit analysts.