There are two aspects of my day to day job as a portfolio manager that
really excite me. One is helping clients achieve their return objectives,
but also creating positive societal change. We can make the world a
potentially better place. And that is something that is very, very exciting
for me as a parent and for us as we all look to the future.
ESG stands for environmental, social and governance factors that can
impact the credit worthiness of issuers.
Those issuers, those credits that pay a lot of attention to environmental
and social factors in addition to governance stand to be better strategic
long-term thinkers and we believe make better investments.
PIMCO’s investment process is based upon what we call our Secular view of
the world, which is a 3-5 year view of the world. A lot of the factors of
ESG tend to be very long-term in their nature, so there is a natural
philosophical alignment in the way that we have always thought about
managing portfolios and more explicitly incorporating ESG into that
process. When it comes to credit research, the way we influence the
bottom-up portfolio construction is to fully integrate our ESG group in the
portfolio management team.
It’s not a silo’ed activity with an ESG team sitting separately.
So we built up our research capabilities, and we now have our own
internal ESG ratings for all the different sectors of fixed income.
We think of the ESG team as simply one of the specialist desks at PIMCO.
So for the general group we have a lot of interaction between ourselves and
the team, but also we have the dedicated ESG strategies.
With dedicated ESG portfolios, we believe you don’t have to give up risk
PIMCO’s ESG platform is really built on three pillars.
Exclusion which is the first thing that most people think about. You
know, which things you would not include in a portfolio if you were
sensitive to ESG types of risk. And then we also have evaluation in that
framework. We are using our internal research and ESG scores to identify
who is moving up in terms of their performance. And those are the types of
issuers we want to focus on. And then the last pillar, and this is really
important, is engagement.
And through this engagement we are very focused on the UN Sustainable
Development goals. So we are very much promoting SDG reporting among
issuers to ensure that they’re reporting shows how their business strategy
is aligned with the SDGs.
It’s going to take several trillion dollars a year to achieve those goals
and a good portion of that’s going to need to come from the bond market.
Now, PIMCO has that ability to influence those issuers because they want
us at the table when they come back to raise more money. We think that
gives us a very, very strong ability to positively influence over time.
For example, I engaged with this business, one of the largest aircraft
leasers in the world because they had quite a poor ESG rating, mostly
because they did not produce a sustainability report. And through our
discussions, we established that this business was very much aligned with
sustainability, that two thirds of its aircraft would have the latest
energy efficiency technology by 2021. Our coverage analyst had a very
positive view on this business, and I think that this was a very good
example of the benefits of management being transparent in terms of these
ESG issues. The ESG factors are an integral part of good investment
We believe not only can we build better portfolios, but we can also move
issuers along faster, raise the bar in terms of ESG performance, for not
just an individual credit, but the entire industry.
Bonds is what we do and making positive societal change is what we want
Socially responsible investing is qualitative and subjective by nature, and
there is no guarantee that the criteria utilized, or judgment exercised, by
PIMCO will reflect the beliefs or values of any one particular investor.
Information regarding responsible practices is obtained through voluntary
or third-party reporting, which may not be accurate or complete, and PIMCO
is dependent on such information to evaluate a company’s commitment to, or
implementation of, responsible practices. Socially responsible norms differ
by region. There is no assurance that the socially responsible investing
strategy and techniques employed will be successful.
Past performance is not a guarantee or reliable indicator of future
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 the current low
interest rate environment increases this risk. Current 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.
There is no guarantee that these investment strategies will work under all
market conditions or are suitable for all investors and each investor
should evaluate their ability to invest long-term, especially during
periods of downturn in the market. Investors should consult their
investment professional prior to making an investment decision.
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.