Bring ESG and credit teams closer but keep data granular say BlueBay’s My-Linh Ngo and Lucy Byrne
In the past, many houses have bought in external Environmental, Social and Governance scores or generated them internally using a separate ESG team, says Ngo, Head of ESG Investment. But for BlueBay, external scores are simply the starting point, "and we don't think you should then have separate teams or individuals carving off different parts of the analysis - at least, not in fixed income. We need to bring credit and ESG analysis much closer together," she says.
So BlueBay's credit analysts conduct the initial issuer ESG assessments, says Lucy Byrne, Senior ESG Analyst, "using all the data the ESG team provide for them as well as their own knowledge," and then work with the specialist ESG team as they review and finalise each co-owned assessment.
The investment ESG score, on the other hand, is assigned solely by the credit analyst because they best understand the investment context, with Ngo's ESG team questioning any anomalous reasoning.
"All the data in the world won't help if you can't put it in a platform or workflow that's easy to access and part of people's natural routine," says Ngo. So the key internal and external data points are held within BlueBay's proprietary platforms, easily available to credit and ESG analysts as well as portfolio managers.
"We see external ESG data points alongside internal ones, so monitoring where we're diverging is interesting," Byrne says. That granular transparency drives ongoing debate when assigning and applying the scores. For example, she says, when investment teams meet with credit analysts their discussions about an investment can cover the relevant ESG factors.
Ngo says BlueBay's bespoke approach supports a growing trend. "Across industry leaders, you're seeing a disaggregation in terms of how investors use ESG data. It is moving from: ‘Give me a view, an aggregate opinion on that company, is it BBB is it CCC?' towards a demand for the underlying data components," she says.
That's because, "investment teams increasingly want to decide for themselves which ESG factors are credit relevant in a given context. We're also seeing an expansion of granular data types: climate investors may want bespoke scenario analysis in addition to carbon footprints."
That trend is driving growing awareness of ESG as a potential source of investment alpha across sectors such as investment grade, high yield and - increasingly - sovereign debt. "ESG helps us make more informed decisions not just from a risk perspective but from an opportunities perspective because some ESG factors are not yet priced correctly by the market," Ngo says.
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