Creating a better world for future generations through ESG and sustainable investing.

During this session, Samuel Rhee, Chief Investment Officer of Endowus, Victor Wong Kee Yew, Head of the Sustainability Office of UOB Asset Management, Lupin Rahman, Ph.D. Executive Vice President & Portfolio Manager of PIMCO, Marika Dysenchuk, Executive Director of J.P. Morgan Asset Management and Erik Keller, Client Portfolio Manager of Robeco will share their thoughts and insights around sustainable investing and fixed income funds.

0:00 Introductions

6:12 Introduction to PIMCO's ESG Integration

8:16 Introduction to J.P.Morgan Asset Management's ESG Integration

13:25 Introduction to UOBAM's ESG Integration

17:34 Introduction to Robeco's ESG Integration

22:04 How is Fixed Income ESG Investing different from Equity?

25:00 History of ESG Investing with Fixed Income

29:56 Is passive investing possible with ESG?

36:03 Does ESG Investing go against certain investing principles?

41:21 How to avoid greenwashing? Why is it important for fund managers to do their own due diligence & proprietary research?

46:48 Introduction to Green Bonds

49:12 QnA: Given there are no global green bond classifications (unlike S&P, Fitch), how do investors and AMs ensure that these bonds are not greenwashed?

54:12 QnA & What is the impact of interest rates especially recently and how the interest rate movements affect performance?

1:01:28 Conclusion

How does J.P. Morgan Asset Management approach sustainable investing and ESG integration? (8:16)

Marika: At the heart of our approach to ESG investing and sustainable investing at J.P. Morgan Asset Management is proprietary research, so this means that ESG considerations are embedded within our deeply resourced research teams and ultimately we believe that this allows us to develop and build customised solutions for our clients and more importantly to reflect their values.

You can see that our commitment to sustainable investing dates back decades. In 2007, we became signatories to the United Nations principles for responsible investing, in 2016 we established our investment leadership team and that's really started us off on this path that we've been on for the past five years to progress our sustainable investing capabilities. That was also when we formalised our commitment to ESG integration (which we have been doing for years). This sustainable investing leadership team together with our dedicated sustainable investing team uses a structured 10-point system for assessing every single strategy and team across J.P. Morgan Asset Management to determine whether or not they are ESG integrated. So we have this rigorous approval process in order to get that stamp of ESG integration.

Sustainable investing is not a standalone isolated effort at J.P. Morgan Asset Management rather it's embedded within everything that we do from an investment standpoint and you can see that our sustainable investing team reports up through the heads of our investment desks.

How does UOB Asset Management approach sustainable investing and ESG integration? (13:25)

Victor: We have made it an objective, a purpose and a statement to embed sustainability into the company's DNA. The four strategic pillars we have here but today we are going to focus on the middle two, which focus on sustainability. I think we really believe it is possible to invest for both profit and purpose and of course shaping a better world for future generations. As investment managers and members of the investment community we can and should play a role in this.

We are very proud of our asian heritage and we have offices across the region where we are strong in ASEAN. When we combine the two our investment DNA, our focus on sustainability and tapping our expertise and the in depth knowledge of the local asian markets actually gives us the ability to effectively implement sustainable investing into our investment process.

Our journey may be a bit shorter than some of our peers but having joined PRI only last year it forces us to run a little bit harder and a little bit faster. What we do now is that we realise that we have the investment background and expertise we found that there was a very strong need especially in the asian region to develop local expertise and not just in fundamental research. We have decided that after starting a dedicated sustainability office in Singapore we are going to roll this out to all offices around the region, which we are in the midst of doing this now to Malaysia, Thailand, Indonesia, Taiwan, Brunei and Vietnam. These are frontier markets but ESG or sustainable investing to these markets is still a very new concept, so we are excited to be playing a key role in adding value and increasing awareness to promote sustainable investing. This is the start of a mega trend as far as sustainable investing is concerned. We have seen top-down initiatives in countries in China, South Korea, Japan announcing very ambitious targets and even in our home country in Singapore, where the government has with the Green Plan 2030, and with these national agendas the growth outlook for sustainable investing is very strong.

Can ESG be done in fixed income and how is fixed income ESG investing different from equity? (22:04)

Victor: When I started in the equities background it seemed smoother to integrate, so when I started the team in UOBAM the sustainability office we were looking at ways to demonstrate that we were actually getting increased outperformance and yes the number came out that you do get a bit of out performance and lower volatility. We started to realise that the concept or the approach to looking at ESG investing for both asset classes remains quite the same. It is not something that came on the scene in the last few years, it is something that we have been doing maybe in the background like the governance aspect for example. We have always incorporated some sort of environmental and social into the fundamental approach but what has come to the forefront is the availability of more data and more disclosure. It has allowed us to fine-tune exactly how we look at the different asset classes. We are now looking at a common way to engage both asset classes.

Erik: We see the benefit of it and we've been using ESG to look at the downside risks, so can ESG translate into material downside risk for a company and if therefore that's the case we want to downgrade an assessment. So i think that has been a very valuable insight as credit investors really focus on avoiding the losers and instead picking the winners but also in terms of creating an impact portfolio so identifying companies that positively impact sustainability. We have seen the clear benefits and the growth as you get more data available to make that assessment.

QnA: Given there are no global green bond classifications (unlike S&P, Fitch), how do investors and AMs ensure that these bonds are not greenwashed? (49:12)

Erik: I think it is important to do your own eligibility check and to really see if the project itself contributes to the environmental goals, how it is aligned with EU taxonomy, is there impact reporting and indeed does it fit the overall environmental strategy. For example, is there a utility that is issuing green bonds for a solar park but at the same time they're expanding a thermal coal mine? That clearly is not consistent with the overall environmental strategy and look at the corporate conduct of the issuer itself where you want to make your own assessment and that eligibility check. So therefore we will not accept every green bond for being a green bond, in a number of cases we will say well this does not pass our check and we will not invest.

I think another important element is whether we can invest in green bonds across the different strategies, so it's a way to finance companies that are transitioning to renewables. We also want to deliver financial returns as well so in our broader discretion portfolios we do want to look at relative value in green bonds and that can sometimes be quite challenging where this is something you want to incorporate into your investment thinking but as well ask is this really the best opportunity currently. You do see more sovereignty issuing it with sociable sustainability green bonds as well, it is definitely a way to allocate capital to companies transitioning to a better sustainability profile and a greener setup.

QnA: What is the impact of interest rates especially recently and how the interest rate movements affect performance? (54:12)

Marika: At J.P. Morgan our sustainable fixed income strategy that we manage is an explicitly sustainable version of our flagship unconstrained portfolio that we've been managing for a number of years. We have two very similar portfolios, the only difference is their sustainability profile that we're running in conjunction especially over the course of last year during the extreme market volatility. What we saw comparing the performance of those two strategies is that our sustainable strategy did outperform during the market downturn by quite a significant amount and it outperformed the broader fixed income universe as well if we think about the high yield market, the emerging market space, investment grade credit etc. In terms of are you getting higher interest rates or is it fewer defaults, I think it is more of the latter. It goes back to this element of downside protection to some extent just given the fact that you're focusing typically on higher quality companies and countries so there is a little bit of that quality bias and there is an element of them being able to outperform. I think it is really important to know what you're investing in and the different markets.

Lupin: On performance, we've done a lot of research on this both on the corporate and sovereign side and what we can conclude is ESG oriented strategies do not necessarily detract from performance even in very very specific asset classes like emerging markets and as we've noted before during periods of volatility, ESG oriented strategies can often outperform. I think the question is still out there in terms of whether this outperformance in recent years is related to the inflows that are coming into this asset class. Over the last couple of quarters we are seeing the ?reenium' essentially compressing quite significantly, which would suggest that perhaps you know in the next couple of years we'll really be able to test the audience question as to whether it is because there is greenium and a kind of buy-to-hold orientation for holders of these types of bronze which is resulting in the outperformance and lower volatility of the asset class. It is still a nascent asset class and I think the next couple of years will shed important light as to the directionality.

Theoretically, I agree that if you are looking at greater risk mitigation, greater engagement with issuers should help returns on a risk adjusted basis over the longer term as well as impact. I think engagement is one of the key pillars of how I believe fixed income investors can have an impact in outcomes for issuers and here I think it's a very interesting area because engagement is one of those facets of ESG investing where you really have a significant amount of coordination with your peers across the asset management groups, as well as, international bodies so it's not solely by side asset managers interacting with issuers on a one-to-one basis which is something that PIMCO does a lot. In addition, there is a communal aspect to this and essentially working with other asset managers to influence outcomes and issuers, particularly in sovereigns where perhaps influence is much harder than in a corporate credit setting.

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