Incorporating ESG into fixed income strategies is not without its challenges. The biggest of these is the availability and quality of data, although the situation is getting steadily better.
"We are fighting tooth and nail for standardisation of data," says Ketish Pothalingam, portfolio manager and member of PIMCO's ESG team. "It will make all our lives easier, especially from a reporting perspective."
PIMCO has a dedicated team of ESG analysts who analyse the ESG merits of each issuer using various quantitative and qualitative factors and assign a proprietary score for each of the ‘E', ‘S' and ‘G' pillars.
"We are trying very hard to get standardisation as a key part of the process going forward, and regulation will be an important part of that, especially with regard to disclosing data," says Pothamlingam.
Regulators are increasingly placing more emphasis on the quality of reporting. Reporting against the Task Force on Climate-related Financial Disclosures (TCFD) is set to become mandatory in the UK for publicly quoted companies, large private companies and Limited Liability Partnerships (LLPs).
The International Financial Reporting Standards (IFRS) Foundation is also developing a new Sustainability Standards Board, with the intent of adopting a similar climate disclosure standard. With the support of the regulators, the quality of data is set to continue improving.
This article is funded by Pimco