Context: As we previously mentioned we are in the process of fully integrating e ESG analysis in our credit analysis, where do we stand on the development of the project?
Impact for the fund: In the process of implementing full cover for all our issuers
ESG is an important topic and this has always been the case for Atlanticomnium.
We have put in place a process of formalizing the integration of ESG into our investment process, We expect bythe end of the year to show that the majority of the issuers in the portfolio have internal research covering ESG. As part of this project, an ESG policy document is available on the GAM website and will be updated as our program progresses.In addition we are due to become UN PRI signatories this year as our application form has already been sent in. ). . Also note that as UN PRI signatories we will have annual reporting requirements, which will highlight our ESG efforts for the Credit Opps strategy.
Historically, the “G” in ESG has been a large area of focus, as very topical during the reconstruction of the European financials sector. Improving Governance of banks has led to stronger risk management, improved oversight, lower litigation – overall reducing operational risk. In tandem with regulation that has boosted capital and reduced credit and market risk – this has led very strong returns for subordinated debt holders that have benefitted from improved fundamentals of the sector.
Nevertheless, we do not ignore the “E” and “S” that are important aspects as credit investors and can positively or negatively impact banks’ credit profiles. Environmental policies of banks (in lending books) and insurers (in investment portfolios) are becoming increasingly important – for example Oil & Gas exposures, as we are living unprecedented shocks in the commodities markets. We closely monitor banks’ and insurers’ exposures to these sectors to assess potential risks. On the positive side, financials have gradually reduced their exposures to high carbon industries (such as Oil & Gas, Shipping, etc.) and increased exposures to environmentally-positive industries, reducing credit risk over time. Last but not least, the “Social” component is an important aspect, especially in current times. In the past, this has mostly been a detractor to banks’ ESG profiles (lay-offs due to restructurings – necessary to the survival of the industry due to revenue headwinds). Today, banks are very well positioned to support the real economy and their clients through this time of uncertainty therefore fulfilling their social duty.