Understanding PIMCO’s ESG Platform
Olivia Albrecht: We like to think of sustainable investing as a broad spectrum, from avoid on the one hand with negative exclusions and screening for some portfolios, all the way out to impact oriented strategies on the other end of the spectrum, where investors are looking to make a specific impact in a certain community or area with the investments that they’re making.
So there’s definitely a continuum within the sustainable investing space. There are many different ways of executing and building an ESG or sustainably oriented portfolio. Some of those strategies could include best in class approach, where you’re looking to utilize ESG scores to build portfolios that focus on higher scoring, ESG issuers.
Others are focused on specific sustainability themes like climate or gender. And then in between, there’s obviously a focal area on ESG integration, about how are managers incorporating ESG factors in a systematic or formal way into their broad investment process.
Our platform is composed of two key areas. The first is around ESG integration, and this is about how PIMCO is systematically incorporating material, environmental, and social factors into our broad investment process that touches the nearly $2 trillion of assets that we manage.
In addition, we have built portfolios that are designed to achieve traditional PIMCO style risk adjusted returns, but also achieve sustainability objectives.
As a pillar of our ESG strategies, we engage with issuers across the fixed income universe
I think our investors globally typically think of engagement in the context of equity holdings, where there are proxy votes and other levers to pull as an investor. What is it that we do as fixed income managers to drive change and engage with issuers?
Actively Engaging with Bond Issuers
Scott Mather: We’ve always believed in engaging with issuers that we’re investing in and doing our own research to supplement what’s available out there from others. And it’s a key part of our understanding of management’s quality and of how they think about stress testing their business, and therefore how we should think as investors about the investment risks of investing with them.
And so many times, there’s a constructive dialog back and forth about what is best practice, maybe what others are doing in the peer group that we as investors, and we think other investors, would like to see. They very much care about that.
There’s another way, though, and maybe even more direct way, that we have influence, and that’s many people forget that most bond issuers have to come back to the market quite frequently, and their ratings have a direct bearing on what it costs them in terms of debt servicing costs.
And so they naturally care what investors think. They care what rating agencies think. Investors like ourselves are in touch with all the major rating agencies.
And increasingly, sustainability factors are having a bearing on what people used the just call the traditional ratings, not to mention there’s more and more explicit ratings with respect to ESG risk out there, and much more attention paid to them.
So all of those things sort of go directly to the bottom line in terms of the company thinking about what the cost of debt service is likely to be.
Olivia Albrecht: We invite you to download your own copy of our ESG investing report on PIMCO.com/esg for more detail and to read some of our engagement stories from the past year.
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.
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 results.
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 long-term, especially during periods of downturn in the market.
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.
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