Allianz Global Investors has been a leader in responsible investment since 2000, with our first Sustainable & Responsible Investment (SRI) fixed income strategy launched in 2007. Within our SRI portfolios, we use a proprietary approach to assess companies on their record and trajectory in environmental, social and governance (ESG) considerations. We exclude certain controversial industries which violate the UN Principles for Responsible Investment and companies who do not meet our standards and have not responded to our engagement efforts.
Combining sustainability with an unconstrained approach to global credit
Our original Global Multi-Asset Credit strategy has more than six years of successful performance through turbulent credit markets. It aims to generate positive returns throughout the interest rate and economic cycles by allocating to different credit asset classes, and also from good fundamental bottom- up research.
With a large investable universe and a benchmark-agnostic ap- proach, the team has considerable scope to identify and screen across the global credit markets. They are free to pick the best of breed wherever they may be.
In 2019, in a collaborative exercise with two existing clients, we developed an SRI version of the Global Multi-Asset Credit strategy which uses a more robust approach to sustainability, excluding controversial sectors such as tobacco, weapons and coal.
On an issuer level, the independent SRI research team uses a composite of external data sources, combined with internal research, to score the universe of companies.
The Allianz Global Multi-Asset Credit SRI strategy commits to having at least 80% of the portfolio invested in companies with >1.75 (out of 4) SRI rating scores – promoting a best-in-class focus within the credit selection process.
Sustainability is about more than exclusions
We do not follow a blunt exclusionary approach, however. We also invest to a limited extent in unrated or low-scoring issuers that we call “sinners turned saints”. Where problems have been identified, we engage with the issuer to raise our con- cerns. Assuming the management demonstrates willingness and ability to implement change, we may invest, while main- taining a close watch to ensure that commitments are upheld. The time horizon is typically three to six months, after which the sustainability scores should move above the minimum threshold, or we will divest from the position.
Ultimately, we believe our more pragmatic approach should deliver positive social outcomes as well as improved financial returns for our investors as markets recognise an improved sustainability profile. We also believe that most adverse credit events have their roots in E, S, or G factors, so monitoring these can help to reduce the downside risks.
Our SRI fund offers similar forward-looking risk and yield as the original fund, while observing the more stringent sustainability criteria. And as the chart below shows, there has been no sacrifice in performance vs. the original fund since launch.
To find out more about the strategy and the team who manage it, visit our website at uk.allianzgi.com