BlueBay’s My-Linh Ngo, Head of ESG Investment, and Lucy Byrne, Senior ESG Analyst, on how fixed income ESG might improve investment decisions
Will incorporating Environmental, Social and Governance (ESG) factors improve investment decisions - and could Covid-19 leverage this?
My-Linh: In the future, we'll see a tightening, ever-clearer link between ESG factors and financial performance. ESG mega-trends are increasingly impacting markets and externalities - the unrecognised costs of a firm's actions - are becoming internalised. Covid-19 has shown how dependent a company is on human capital and acting responsibly toward customers and communities: how firms respond in this crisis will influence loyalty and brand value.
We also view ESG in part as a quality filter. Companies that manage ESG risks may be better placed to weather inevitable external shocks, and to rebuild in today's ‘new normal' because they tend to be more resilient, willing to learn, collaborative, innovative and open to new ideas. Companies with a better grasp of ESG will tend to have a more holistic, multi-dimensional view of the world that embraces medium to long-term as well as shorter term issues.
What has been the key to helping your investment teams apply ESG scores?
My-Linh: Accountability, ownership and transparency of the ESG views. Before we put our present approach in place, like a lot of providers and managers, we bought in data from third parties. But often the credit analysts would disagree with it - there was no ownership.
Our operating model is now to involve the credit analysts and portfolio managers in this process - their major input into the ESG scores gives them a huge sense of ownership - and to integrate ESG analysis into the credit risk workflow. But we also need in-house specialist ESG expertise to inform the ESG policy, identify emerging issues, and work closely with the credit analysts.
Lucy: It's proving really important that we capture the fundamental issuer risk and the investment risk, as two distinct elements - and that we do that across all of our investments, not just the ESG-oriented funds. The combination of two distinct metrics, and the rollout of an integrated process and infrastructure that makes all that data accessible to everyone, has helped create the step change at BlueBay.
What do you think a good ESG approach looks like today?
My-Linh: There are different strands. There's the data; the analytical tools for reporting and monitoring; the infrastructure to hold the data and analytical results; the reporting of everything we do internally and to the end clients; and then there's our industry collaboration. So what we've done over time is strengthen or broaden each strand. You can't do it all at once.
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