Not all investors share the same ESG objectives. While most aim to manage ESG risks and opportunities specific to individual companies (i.e., single materiality), some also target net positive impacts on the environment and society (i.e., double materiality). Unfortunately, it is often assumed that the former objective automatically leads to the latter, which is not always the case. Given these disparate objectives, an active asset manager needs multiple analytical tools at its disposal.
ESG factors can materially impact an issuer’s financial performance and, consequently, a manager’s ability to generate alpha. Therefore, our proprietary Fundamental Credit Ratings include ESG considerations where they have the potential to meaningfully alter an issuer’s ability to service its debt. These Fundamental Credit Ratings are the foundation of the relative-value analysis that occurs in each strategy that we manage, regardless of whether the strategy carries an ESG label.
Unlike the ESG component of our Fundamental Credit Ratings, our proprietary ESG Impact Ratings assess an issuer’s most material impacts on the environment and society, regardless of whether they are credit material. Therefore, ESG Impact Ratings are a key tool used in our ESG-oriented strategies, which seek to generate positive environmental and societal outcomes.
ESG impact analysis is not straightforward. While it requires a framework to guide assessments, that evaluation is only as good as the analysis of an individual issuer. Hence, we leverage our deeply staffed credit research team to provide evaluations of individual credits within the parameters of our corporate ESG Impact Ratings framework.
The following sections focus on the concept, process, and implementation of theESG Impact Ratings for global corporate bonds as a tool that assists clients with expressing their policies, views, and beliefs through their allocations to corporate debt