Sovereign ESG Impact Ratings Framework MethodologySovereignESGImpactRatingsFrameworkMethodology

We strive to understand the impacts our investments have on the environment and society. This is generally achieved by assessing investments against negative and positive ESG impacts that are relevant to the issuer. This ESG impact assessment is distinct from our assessment of the credit risk from ESG events that could impact the financial/economic value of our clients’ investments.

Whereas the consideration of financially material ESG risks and opportunities is part of our credit analysis in all credit strategies, the distinct consideration of ESG impacts is applicable only to strategies disclosing the use of this additional lens or to portfolios where clients express a desire to invest based on PGIM Fixed Income’s ESG impact assessments. PGIM Fixed Income’s ESG Committee considered a wide range of sustainability issues on an industry, activity, and asset class basis, including principal adverse impacts. The sustainability issues and principal adverse impacts deemed relevant to the particular type of asset class and/or industry and/or individual activity were then identified and built into the ESG Impact Rating framework, such that analysts are guided to consider these across asset classes and sectors. However, these should be seen as a guide, and analysts may choose to use a different indicator or piece of information, where appropriate, to assess performance and assign their ESG Impact Ratings.

The ESG impact assessment generally applies to all asset classes. An assignment of a high ESG Impact Rating is generally based on the credibility and ambition of an issuer’s strategy to reduce negative environmental and social impacts, and their actual achievements at the time of our analysis. Accordingly, the extent and quality of efforts and actual achievements by issuers to reduce their negative impacts is the key driver of our ESG Impact Ratings, while efforts to enhance their positive impacts will serve as an additional differentiator that yields higher ESG Impact Ratings.