ESG integration within fixed income
The Fixed Income team uses materiality maps for our corporate, structured credit, and sovereign debt research processes. Each asset class has its own unique characteristics that influence the materiality criteria as well as their degree of relevance. The corporate credit materiality factors are most closely aligned with those of equity; the primary difference is the addition of a governance criteria focused on covenants and bondholder rights. For structured credit, there are a wide variety of subsectors; the relevance of any materiality factor may be quite different by subsector. For example, greenhouse gas emissions are more relevant for commercial mortgage-backed securities than those backed by residential mortgages. Sovereign credit has its own criteria, such as political freedom and property rights.
ESG is embedded within our fundamental corporate credit research effort and paired with our quantitatively oriented loan-level structured and sovereign credit analysis processes. We seek to apply forward-looking ESG insights above and beyond the data. In the same way our credit analysis is forward looking, our evaluation of relevant ESG considerations must also be forward looking. This has applications in sector and security selection, as well as portfolio construction.
Source: Putnam, adapted from SASB Materiality Map, as of 3/31/22.