Viewpoints

Finding Opportunity in Sustainable Investing

Get PIMCO’s current thoughts on sustainable investing and finding ESG investment opportunities in interesting places, such as emerging markets, real estate, retail and leisure.

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Text on screen: PIMCO

Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Erica Kinsella: What is sustainable investing and how does PIMCO approach ESG?

Text on screen: Grover Burthey, Head of ESG Portfolio Management

Grover Burthey: ESG focused products, generally speaking, are distinct from ESG integration, there's a difference there. Integration means integrating material ESG factors, risks, considerations into an overall research process. In other words, the incorporation of material ESG factors that could impact the long-term credit worthiness of an issuer can help investors form a more accurate understanding of a company's risks and opportunities. And therefore relative value.

Images on screen: PIMCO trade floor

At PIMCO, our investment platform rests on two broad pillars. On the one hand, ESG integration for the platform as a whole. There we define integration as the consistent consideration of these types of factors into our investment research process that can include,

Text on screen: TITLE – ESG integration factors:, BULLETS – Climate change risks, Diversity inclusion, Social equity, Regulatory risks, Human capital management

but it's not exclusive to climate change risks, diversity inclusion, social equity, regulatory risks, human capital management, and a variety of other considerations.

For our ESG funds, we have designed solutions for clients that incorporate and really optimize for the sustainability-related objectives.

Text on screen: TITLE – Sustainability-related objectives:, BULLETS – Reduced carbon footprint, Active engagement with issuers and counterparties, Significant green bond allocations, Broad tilt to higher-quality ESG issuers

For example, a reduced carbon footprint, active engagement with issuers and counterparties, significant green bond allocations and other types of labeled bonds, and a broad tilt towards higher quality ESG issuers, as determined by our own research, as well as external sources.

Text on screen: Erica Kinsella, ESG Product Strategist

Erica Kinsella: Jelle, we recognize that climate change will have a profound impact on the global economy, financial markets and issuers. Can you make any comments about climate considerations in our investment process and how do we incorporate climate risk analysis into our research?

Text on screen: Jelle Brons, Portfolio Manager, Global Investment Grade Credit

Jelle Brons: Yeah, thank you. So at PIMCO, so we've developed tools and methods that seek to incorporate over time material climate risk evaluations in our investment research processes.

Text on screen: Climate risk research: 1. Transition risks

Images on screen: Industrial smoke stacks

So our research typically begins with two broad segments. So first of all, the transition risk, for example, tighter regulations on carbon emissions, what impact does it have on these issuers?

Text on screen: Climate risk research: 2. Physical risks,

Images on screen: Extreme weather events: Hurricane and tornado

Most importantly then the second category, physical risks, how the rising intensity and frequency of extreme weather events affect critical assets and natural resources used or relied upon by the issuer.

We are part of the climate action 100 plus initiative. That's an investor led climate engagement coalition that works with selected issuers among the largest carbon emitters in a broad range of sectors. So we encourage issuers to establish ambitious and achievable climate targets in line with the Paris agreements on climate change and advance

Images on screen: Scott Mather at the UN task force

the efforts by issuing green bonds or even a bond link to those United Nations sustainable development goals, the SDGs.

Erica Kinsella: Can you highlight one case study each that illustrates the ESG process elements that we have just discussed? Maybe Grover, we can start with you.

Grover Burthey: Sure. Sure. Happy to I'll start with a situation that's particularly relevant coming out of COP26.

Images on screen: Emerging market countries

We completed an investment in an emerging market based development bank.  It was very active engagement conversation in which PIMCO encouraged more proactive milestones and goal settings in the future with regards to the presence of coal and the lending book and business model.

Images on screen: Windmills and solar panels

Ultimately the commitments couldn't meet where we wanted that issuer to go, but still provided a great opportunity for the platform at large. With regards to our integration efforts, green bond, that made a lot of sense for our non ESG funds. And we're optimistic that with continuing engagement now that we are a sizeable lender with a great relationship there, that as that issuer continues to make progress from any issue standpoint, with regards to climate and coal, that future issuance will be great fits for our specific ESG vehicles given the changes, hopefully, in the future of the business mix there.

Jelle Bronze: From a portfolio management perspective, our ESG funds have been looking at ways for incorporating traits that benefit from a reopening of the economy that has been a key trait for all our PIMCO clients. For example, the airline sector has benefited from a gradually reopening of the economy, but has to acknowledge that some of the sectors, like the airline sector, like the energy sector, are not appropriate for ESG funds. So how to implement that COVID-19 reopening trade in the ESG funds.

Text on screen: TITLE – COVID-recovery ESG investment opportunities:, BULLETS – Office real estate, Sustainability-focused retailers, Leisure sector

So we've been filtering quite significantly, for example, to office real estate investment trust from bearably participating in the green bonds. Those issuers were still trading at very significantly wider spreads not so long time ago, also find specialty retailers that have incorporated sustainability practices and also the leisure sector like hotels. So, this is, from a portfolio management perspective, a way of putting the same trade on, but in a much ESG friendly way.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO

Recorded 17 November 2021

Disclosure


IMPORTANT NOTICE

Please note that the following contains the opinions of the manager as of the date noted, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations. REITs are subject to risk, such as poor performance by the manager, adverse changes to tax laws or failure to qualify for tax-free pass-through of income.

PIMCO is committed to the integration of Environmental, Social and Governance ("ESG") factors into our broad research process and engaging with issuers on sustainability factors and our climate change investment analysis.  At PIMCO, we define ESG integration as the consistent consideration of material ESG factors into our investment research process, which may include, but are not limited to, climate change risks, diversity, inclusion and social equality, regulatory risks, human capital management, and others.  Further information is available in PIMCO’s Environmental, Social and Governance (ESG) Investment Policy Statement.

ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by PIMCO or any judgment exercised by PIMCO will reflect the opinions of any particular investor, and the factors utilized by PIMCO may differ from the factors that any particular investor considers relevant in evaluating an issuer’s ESG practices. In evaluating an issuer, PIMCO is dependent upon information and data obtained through voluntary or third-party reporting that may be incomplete, inaccurate or unavailable, or present conflicting information and data with respect to an issuer, which in each case could cause PIMCO to incorrectly assess an issuer’s business practices with respect to its ESG practices. Socially responsible norms differ by region, and an issuer’s ESG practices or PIMCO’s assessment of an issuer’s ESG practices may change over time. There is no assurance that the ESG investing strategy or techniques employed will be successful. Past performance is not a guarantee or reliable indicator of future results.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

Strategy availability may be limited to certain investment vehicles; not all investment vehicles may be available to all investors. Please contact your PIMCO representative for more information.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Irish Branch  (Company No. 909462), PIMCO Europe GmbH UK Branch (Company No. 2604517) and PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG).  The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication.| PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (110) Jin Guan Tou Gu Xin Zi No. 020. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.). Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2022, PIMCO.

CMR2022-0103-1974540

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