Is ESG integrated into your investment process? How? Which funds or does this apply to the entire firm?
Insight’s approach to responsible investment places an emphasis on the integration of responsible investment and stewardship principles within investment decision-making at the firm level. To this end, where possible, we follow a responsible investment approach for our investments, regardless of whether they include specific ESG exclusions, constraints or targets. This is because we believe that delivering superior investment solutions depends on the effective management of the risks and opportunities presented.
Our approach is underpinned by the belief that ESG issues are important drivers of investment value. In our view, integrating ESG factors in research and engaging with companies to improve their ESG standards is essential to effectively managing portfolio risk. We expect managers who continuously develop their ESG investment approach to stay ahead in this area to deliver better risk-adjusted returns in the long term.
From an investment perspective, we believe investing responsibly means taking all risks into account, including a full analysis of relevant and material ESG factors, when making investment decisions. For our corporate and sovereign debt portfolios our analysts and portfolio managers have access to proprietary ESG ratings reflecting a range of data sources, which inform a targeted engagement programme with companies where we frequently raise ESG issues and actively encourage them to improve their practices. Understanding all underlying material risks is essential in helping us to decide whether an investment is over or under-priced or fair value.
Who conducts ESG analysis within the team? Is it done by PM, financial analysts or a central ESG team?
Insight’s approach to responsible investment is the responsibility of investment teams and decision-makers, supported by our dedicated Responsible Investment Team.
Our credit analysts are responsible for researching material ESG risks, making recommendations to portfolio managers with respect to the industries and sectors that they cover. Portfolio managers are responsible for setting credit and sector strategy (where appropriate) and for security selection, taking recommendations from the Credit Analysis Team. Analysts and portfolio managers may also engage with issuers to better understand how they are managing the ESG risks they face, as well as to encourage change where appropriate.
Robert Sawbridge, Head of Responsible Investment Solutions, oversees investment strategies with ESG or responsible investment-related criteria. Joshua Kendall, Head of Responsible Investment Research and Stewardship, oversees the integration of ESG analysis and engagement activity across the investment division. They are supported in these efforts by the Responsible Investment Team.
We believe a key element of ESG analysis is active research and engagement regarding broad regulatory and policy changes. We support several collaborative initiatives (see question 8). Our market and regulatory reform function researches and engages on wider policy issues, such as proposals for RPI reform and how UK defined benefit pension schemes invest.
Please summarise the key ESG metrics that are core to your strategy?
In terms of environmental factors, our proprietary ESG ratings methodology provides all analysts with sector specific and issuer specific information on key issues. This model helps us to identify key environmental risks that a specific sector or issuer may be facing. We use this information as part of our credit risk analysis to decide whether we are being adequately compensated for the risk and to identify key issues to engage with issuers on.
Climate-related risks associated with issuers in which we invest form an inherent part of our ESG ratings methodology. ESG ratings are available to all portfolio managers via systems and are integrated across all of our asset classes as part of the investment process. Alongside this, the portfolio management system also contains certain carbon data points on companies, including the carbon reserves and the carbon intensity of the individual issuers we invest in, enabling all our portfolios managers to access this information should they need to implement more stringent carbon restrictions on portfolios.
Many of our portfolios have climate-specific objectives associated with them, which can include reducing exposure to high carbon intensive companies and reducing exposure to the lowest rated companies within a particular sector.
We use our proprietary ESG ratings to identify key issues, which includes relevant social issues. We use this data to evaluate how well we are being compensated for these risks and to engage with issuers on specific social issues.
In terms of social impact investing we have a dedicated strategy, which focuses on investing in impact bonds as part of its investment objectives. To aid this process we have a specific impact methodology and overall framework for assessment and investment in impact related bonds.
At Insight, our philosophy for impact investing is based on the following criteria: intentionality, measurability, proactivity, additionality, commonality and transparency.
We also recognise that impact can also be defined through the United Nations Sustainable Development Goals (UNSDGs). As such, for potential investment opportunities we may consider the alignment of a business or bond to the UNSDGs to understand how the issuer is achieving a positive impact.
Corporate governance is a key pillar which not only forms part of our proprietary ESG risk scores but is also a key element of fundamental analysis when we consider individual investments. Individual analysts will use the relevant information from our ESG ratings along with information they have on issuers’ governance structures to identify key risks. These risks are considered alongside quantitative analysis of issuers to decide whether we are being compensated well enough for the risks. Further to this, credit analysts will discuss relevant governance related issues as part of their engagements with issuers to better understand how these risks will be mitigated over time.
How is this research carried out? Positive/negative screening? Qualitative?
We seek to deepen our understanding of ESG issues through our own analysis, engagement and using proprietary ESG tools. The first step is effective data that covers our investment universe.
Insight’s corporate ESG ratings
- Data providers disagree on ESG risks and there are gaps in available information – leading us to develop the Prime corporate ESG ratings that align with our approach to corporate fixed income.
- Insight’s proprietary data covers 99% of our investment grade indices.
- Our framework considers 33 key ESG issues, ranging from carbon emissions to corruption.
- Our Insight ESG ratings aim to be more dynamic and complete, and to integrate our analysts’ research more effectively, than relying solely on third-party data. We reclassify, reweight and organise the data according to our analysts’ current views on material risks facing industries to generate an ESG rating and momentum signal for a wide range of entities.
Climate Risk Index
- In 2017, we introduced our climate risk ratings, now known as the Prime climate risk ratings, the investment industry’s first comprehensive ranking of fixed income corporate credit issuers. More information on our CRI is given below.
Country Sustainability Risk Index
- In 2018, we introduced our proprietary sovereign ESG risk ratings. The Prime sovereign ESG ratings now cover 123 countries and aim to help us better understand the ESG risks at the country level across our portfolios.
- Fixed income investors are sharpening their focus on the sustainability risks of individual countries. We believe investing effectively in sovereign debt requires analysis of ESG matters. We complement our research with our ratings to help us better understand country ESG risks across our bond portfolios.
- Alongside ESG risk ratings, the impact ratings focus on ESG factors related to the all-round good governance and sustainable development of a country.
Insight’s impact bond assessment
- To manage sustainability objectives for our clients, Insight analyses impact bonds using our proprietary framework, which includes both a quantitative and qualitative assessment.
How do you measure your success regarding ESG? Performance against benchmarks (which ones)? Reports?
For our strategies, we consider the following metrics as part of our analysis:
- Carbon intensity scope 1 + scope 2 emissions per m$ revenues
- Carbon reserves
- Percentage of portfolio investments in labelled impact bonds
- Portfolio mappings for the UNSDGs
We offered tailored reporting on a range of ESG metrics for clients with ESG-specific requirements.
Is your business a signatory to PRI? Why, why not?
Insight was a founding signatory to the United Nations-supported Principles for Responsible Investments (PRI) in 2006 and became the first asset manager to produce a comprehensive report detailing how we meet our commitments as a signatory. In 2016, we were given Tier 1 status from the Financial Reporting Council.
In 2020, we were awarded a PRI ‘A+’ rating for strategy, governance and the integration of responsible investment-related issues across fixed income corporate bond portfolios, securitised asset portfolios and fixed income government portfolios.
Are you disclosing climate change policies in line with the Task Force on Climate-Related Financial Disclosures (TFCD)? Please briefly outline your policies.
We have developed the Prime climate risk ratings, which are aligned with the Task Force on Climate-related Financial Disclosures (TCFD). We believe our ratings were the investment industry’s first climate risk index (launched in 2017) for corporate debt. The ratings are designed to provide a comprehensive ranking of how fixed income corporate credit issuers manage their climate change-related risks and opportunities, and how they are positioning themselves for the transition to a low-carbon economy. We have designed the ratings to be used to assess risks and opportunities related to climate change.
- It helps users monitor risks in line with TCFD guidelines. The Prime climate risk ratings’ framework and methodology are aligned with the requirements of the TCFD, with companies assessed against objectively assessable indicators across the four TCFD themes: governance, strategy, risk management, and metrics and targets.
- The ratings provide a wide-ranging assessment of how 1,700 corporate fixed income issuers – investment grade and high yield – are managing the risks and opportunities presented by climate change.
- The ratings aim to help manage risk, accounting for the risk characteristics of specific sectors and for the carbon impact of individual issuers. They aim to help investors identify the issuers most at risk from a transition to a low-carbon world. They also allow investors to identify issuers that are managing these risks effectively and those that are not.
- More information on the Prime climate risk ratings is available here.
Has your business signed up or committed to any other campaigns relating to ESG?
Insight supports a number of collaborative industry initiatives and investor forums. These include:
- UK Stewardship Code, since 2012 (Tier 1)
- UK Sustainable Investment and Finance Association (UK SIF), since 2002
- Carbon Disclosure Process (CDP) carbon action initiative, since 2003
- CDP water programme, since 2003
- CDP forests programme, since 2003
- Institutional Investors Group on Climate Change (IIGCC), since 2003
- IASB Investors in Financial Reporting Programme, since 2015
- United Nations Climate Change Conference, COP 21 Paris Pledge for Action, since 2016
- Climate Action 100+, since 2017
- International Capital Market Association (ICMA) – Green and Social Bond Principles Advisory Group, since 2019
- PRI Investor Expectations Statement on Deforestation and Forest Fires in the Amazon, since 2019
- Global Investor Statement on Climate Change, since 2019
- IIGCC Paris-aligned portfolios, since 2019
- PRI Investor Expectations Statement on Climate Change for Airlines and Aerospace Companies, since 2020
 Awarded to Insight, signifying that we provide “a good quality and transparent description of [our] approach to stewardship and explanations of an alternative approach where necessary”.
 PRI ratings are assessed against a range of indicators. Full details available from www.unpri.org.
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