30 June 2020
Wellington Management's Global Credit Investment Team has developed a quantitative environmental, social and governance (ESG) ratings methodology, which has been incorporated into its fixed income portfolio management system to ensure strong ESG credentials of the issuers selected.
The methodology generates a rating of 1 to 5, with 1 being the best and 5 being the worst, and has been applied to more than 7,000 companies. The portfolio management system allows this ESG rating to be applied to issuers in real time.
"We believe ESG factors can have a significant impact on the performance of the companies in which we invest," said Louis Chabrier, fixed income portfolio manager at Wellington Management.
Wellington Management has an exclusive partnership with climate research institute Woods Hole Research Center. Wellington claims the input from this research allows it to better understand how climate change may impact global capital markets, and more ably mitigate the physical risks of climate change within portfolios.
To ensure that the rating is not just a one-off score that oversimplifies complex ESG factors and positive or negative trends, the Global Credit portfolio managers receive daily reports that highlight holdings with weak ESG ratings.
The team also conducts comprehensive ESG reviews of portfolios to help portfolio managers identify the greatest ESG risks and opportunities. Engagement with companies, either directly with company boards and management teams or through proxy voting, has also been a feature of Wellington Management's ESG approach to fixed income. EF