On the Front Lines of Climate Change: The Opportunity in P&C Insurers
The P&C insurance industry’s expanding growth opportunities continue to support PGIM Fixed Income's overweight positioning to the global P&C insurance industry.
Environmental, Social, Governance
Environmental, social, and governance (ESG) factors are embedded in PGIM Fixed Income's investment process.
ESG Approach
As a signatory to the Principles of Responsible Investment (PRI), PGIM Fixed Income is committed to adopting and implementing the Principles, consistent with our fiduciary responsibilities. We also recognize that applying the Principles of the UN Global Compact (UNGC) and the UN Sustainable Development Goals (SDG’s) may better align clients with broader societal objectives. To this end, the PGIM Fixed Income ESG Committee (the “Committee”), comprised of both investment professionals and senior executives, is actively engaged as the internal governing body for directing and overseeing PGIM Fixed Income’s ESG-related activities. In addition to the development and governance of our new ESG rating process, the Committee’s specific responsibilities include:
- Developing all policies and procedures that integrate ESG factors into the PGIM Fixed Income investment process, both generally and with respect to specific PGIM Fixed Income products;
- Establishing the methodology for PGIM Fixed Income’s internal ESG rating framework;
- Overseeing the assignment of all ESG ratings;
- Monitoring ESG-related engagement with individual issuers;
- Establishing and maintaining guidelines for ESG-related portfolios managed by PGIM Fixed Income.
Our Commitment to ESG is Continuously Evolving
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.
How We Assess ESG Issues
PGIM Fixed Income's 2020 PRI Report Card
Related Insights
The Potential Implications of Investing in Coal-Heavy Utilities
Several factors-including evolving regulations, shifting dynamics across commodity markets, declining costs of renewable electrical generation, and mounting environmental concerns-continue to affect the economics of coal-fueled electrical generation. With these factors in mind, this paper addresses a primary investment-related question: Do (or will) utility bonds issued by more coal-heavy or carbon-intensive utilities trade at a discount? Or stated differently, what are the implications from the relationship between bonds issued by coal-heavy utilities and those issued by utilities with less reliance on coal?
Applications of ESG to Securitized Assets
Commonly cited ESG concerns, such as labor practices, corruption, corporate governance, and environmental stewardship, do not prominently feature in many assets common to securitization. However, such interpretations rely on an overly narrow perspective, and ESG considerations-particularly Social and Governance issues-are integral to successfully investing in securitized assets over the long term. In fact, as we discuss in this paper, we believe that securitized asset investors who ignore ESG considerations are failing to heed some of the most important lessons of the global financial crisis.