Sustainable Investing: Insight Through Engagement
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Text on screen: Grover Burthey, Portfolio Manager, ESG
Grover Burthey: ESG investing is not only about partnering with issuers who have already made significant progress on their ESG goals, or have already demonstrated a deeply unified approach to ESG, but where we can have the most impact is really engaging with those who are earlier in their journey, who have less-advanced sustainability practices, and can benefit from perspective and guidance from PIMCO as a major asset manager.
Images on screen: Planting a tree, picking up trash from the beach
This can be a direct way for us to drive positive change that may benefit all stakeholders, investors across the capital structure, employees, and society, as well as the environment at large.
Text on screen: Meredith Block, ESG Research Analyst
Meredith Block: So, at its best, engagement enhances investment insight, while also catalyzing positive change. And, so, generally we conduct two different types of engagement.
Text on screen: TITLE – Two types of ESG engagement: BULLETS – Engagement based on an overarching salient theme, Issuer-focused engagement
First, engagement is driven by an overarching salient theme, which tends to impact many companies across many sectors, and then issuer-focused engagements, where we focus exclusively on issues that are material to investment outcomes.
Text on screen: We seek opportunities to engage with issuers that can make a meaningful impact
Images on screen: Ocean coastline, forest
We have to be very thoughtful about deploying our resources, seeking opportunities to engage with issuers where PIMCO really believes they can make a meaningful impact, and help deliver value for investors and clients.
Grover Burthey: So, our analysts really enforce, reiterate, and then follow up on our ESG objectives, as part of a regular series of interactions. And this is a thread that has to continue over time. Progress itself is tracked by both interim steps taken by be issuers, and effective communication. In other words, we can't only expect them to achieve what we've asked for up front immediately. We want to see commitments being sort of targeted over time, and see progress against those commitments.
Text on screen: Engagement should enhance investment insight as much as it tries to push positive change
Images on screen: Waterfall, windmill, food bank
Meredith Block: Ultimately, engagement should really enhance investment insight, as much as it tries to push for positive change.
And that gives analysts and PMs either confidence that the company is progressing on targets, or signals that perhaps risks are not being mitigated as they should be.
Images on screen: PIMCO Trade floor
Grover Burther: And this really goes to our fundamental approach to ESG research, that this is not just about procuring and consolidating, measuring, or examining third-party information, but it really comes down to our own internal proprietary process, our fundamental research, and using a variety of resources to cross-check and test the credibility of company-reported data.
Furthermore, we spend quite a bit of our time then using this information to test management teams and to discuss what they've represented and ensure that it's consistent with what we deem to be market best practices.
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Environmental (“E”) factors can include matters such as climate change, pollution, waste, and how an issuer protects and/or conserves natural resources. Social (“S”) factors can include how an issuer manages its relationships with individuals, such as its employees, stakeholders, customers and its community. Governance (“G”) factors can include how an issuer operates, such as its leadership, pay and incentive structures, internal controls, and the rights of equity and debt holders
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.
With respect to comingled funds with sustainability objectives (“ESG-dedicated funds”), we have built on PIMCO’s over 50-year core investment processes and utilize three guiding principles: Exclude, Evaluate and Engage. In this way, PIMCO’s ESG-dedicated funds seek to deliver attractive returns while also seeking to achieve positive ESG outcomes through its investments. Please see each ESG-dedicated fund’s prospectus for more detailed information related to its investment objectives, investment strategies and approach to ESG.
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. 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 standardized industry definition or certification for certain ESG categories, for example “green bonds”; as such, the inclusion of securities in these statistics involves PIMCO’s subjectivity and discretion. 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.
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