Bond by Bond

Invested in Positive Change

Members of PIMCO’s ESG team discuss why we believe integrating sustainable thinking with bond investing can positively influence portfolios – while also making the world a better place. For more information, visit our ESG Investing page.

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Mike Amey: There are two aspects of my day to day job as a portfolio manager that really excite me. One is helping clients achieve their return objectives, but also creating positive societal change. We can make the world a potentially better place. And that is something that is very, very exciting for me as a parent and for us as we all look to the future.

Niamh Whooley: ESG stands for environmental, social and governance factors that can impact the credit worthiness of issuers.

Scott Mather: Those issuers, those credits that pay a lot of attention to environmental and social factors in addition to governance stand to be better strategic long-term thinkers and we believe make better investments.

Mike Amey: PIMCO’s investment process is based upon what we call our Secular view of the world, which is a 3-5 year view of the world. A lot of the factors of ESG tend to be very long-term in their nature, so there is a natural philosophical alignment in the way that we have always thought about managing portfolios and more explicitly incorporating ESG into that process. When it comes to credit research, the way we influence the bottom-up portfolio construction is to fully integrate our ESG group in the portfolio management team.

Niamh Whooley: It’s not a silo’ed activity with an ESG team sitting separately.

Scott Mather: So we built up our research capabilities, and we now have our own internal ESG ratings for all the different sectors of fixed income.

Mike Amey: We think of the ESG team as simply one of the specialist desks at PIMCO. So for the general group we have a lot of interaction between ourselves and the team, but also we have the dedicated ESG strategies.

Scott Mather: With dedicated ESG portfolios, we believe you don’t have to give up risk adjusted performance.

Mike Amey: PIMCO’s ESG platform is really built on three pillars.

Scott Mather: Exclusion which is the first thing that most people think about. You know, which things you would not include in a portfolio if you were sensitive to ESG types of risk. And then we also have evaluation in that framework. We are using our internal research and ESG scores to identify who is moving up in terms of their performance. And those are the types of issuers we want to focus on. And then the last pillar, and this is really important, is engagement.

Niamh Whooley: And through this engagement we are very focused on the UN Sustainable Development goals. So we are very much promoting SDG reporting among issuers to ensure that they’re reporting shows how their business strategy is aligned with the SDGs.

Scott Mather: It’s going to take several trillion dollars a year to achieve those goals and a good portion of that’s going to need to come from the bond market.

Mike Amey: Now, PIMCO has that ability to influence those issuers because they want us at the table when they come back to raise more money. We think that gives us a very, very strong ability to positively influence over time.

Niamh Whooley: For example, I engaged with this business, one of the largest aircraft leasers in the world because they had quite a poor ESG rating, mostly because they did not produce a sustainability report. And through our discussions, we established that this business was very much aligned with sustainability, that two thirds of its aircraft would have the latest energy efficiency technology by 2021. Our coverage analyst had a very positive view on this business, and I think that this was a very good example of the benefits of management being transparent in terms of these ESG issues. The ESG factors are an integral part of good investment management.

Scott Mather: We believe not only can we build better portfolios, but we can also move issuers along faster, raise the bar in terms of ESG performance, for not just an individual credit, but the entire industry.

Mike Amey: Bonds is what we do and making positive societal change is what we want to see.

Disclosures


Socially responsible investing is qualitative and subjective by nature, and there is no guarantee that the criteria utilized, or judgment exercised, by PIMCO will reflect the beliefs or values of any one particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and PIMCO is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful. Past performance is not a guarantee or reliable indicator of future results.

Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.

There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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Tina Adatia
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Olivia A. Albrecht
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Investment Strategies

Anchoring Portfolios: Is Now the Time to Choose Core Bonds?

Anchoring Portfolios: Is Now the Time to Choose Core Bonds?

In today’s late-cycle environment where volatility is rising and valuations are stretched, investors should consider increasing their allocation to core bonds. Fixed Income Strategist, Anmol Sinha explains the potential benefits of investing in core bonds, including why they have a higher return expectation now than in recent years and the diversification they may offer in times of greater market stress.

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