Best sustainability reporting by an asset or fund manager, large (fixed income): Breckinridge Capital Advisors

The Breckinridge Capital Advisors issuer engagement report secured the $42 billion fixed income asset manager the Best sustainability report award, as it developed a deeper understanding of the climate risk and reporting challenges within its portfolios.

Breckinridge ESG research director Rob Fernandez told Environmental Finance that it views climate change as a "risk multiplier for corporate, municipal, and securitised bonds," and used the engagement discussions behind the report to support its bondholding surveillance work.

Rob FernandezFernandez said a "common topic" that emerged was the need for more and better disclosures on climate risk. Regulatory requirements may not be up-to-date with the needs of developing "robust" climate risk reporting, he said, and some issuers are not integrating comprehensive climate risk disclosures into their reports.

"Finally, and this rings true in our experience with issuers of municipal bonds, sufficient resources – financial and human – are not available to provide investors with comprehensive climate risk data. This is an area for further advocacy and engagement."

Despite the pervasiveness of climate risk for all issuers, he said the discussions really highlighted the multi-dimensionality of climate risk which can "complicate" the task of transitioning to a low- or no-carbon economy. Nonetheless, he said this multi-dimensionality of the risk "may provide potentially powerful opportunities for collaborations that can accelerate progress".

The 2021 edition focused on physical and transition climate risk, for example, and Breckinridge identified the main challenge in assessing climate risk from mortgage-backed securities (MBS) was lack of disclosure. MBS-issuing agencies only disclose the state of homes backing mortgages, making it difficult to assess whether homes securitised are threatened by coastal flooding or inland wildfires and ground-water depletion.

Breckinridge discovered one of the largest MBS-issuing US government agencies was just starting to integrate climate risk into its considerations and was open to collaborating with investors to better understand and address the risks.

Breckinridge is planning to produce ESG issuer engagement reports annually – each year focusing on the "most relevant and material themes" identified by its ESG analysts. The firm is also working on producing portfolio and composite level ESG reports for clients on a quarterly basis.