Fixed Income investors continue to play a pivotal role in environmental, social and governance engagement efforts.

Considering the growing economic, health and social challenges over the last year and their impact on credit markets, Neuberger Berman’s fourth annual Corporate Credit ESG Engagement report highlights the important role fixed income investors hold to influence corporate decision-making. The report details the corporate engagement activity of our credit research team as well as key areas of focus.

Despite, or perhaps because of, the volatility and uncertainty brought on by the COVID-19 pandemic, 2021 saw a 30% increase in our ESG engagements with issuers compared to the prior year. The majority of our engagements are with the C-suite, as analysts utilize their strong access to senior management to drive issuer improvement on ESG metrics.

Key ESG areas of focus and their impact on credit risk range from social topics including diversity, equity, and inclusion and community relations to environmental topics addressing climate. With the recent COP26 conference bringing world leaders together to discuss climate change, carbon reduction and transition risk continue to be a focus for fixed income investors and issuers. Climate change is a critical risk factor for many industries and can have an impact on business operations, stranded assets and cost of capital for issuers, and we seek to understand how companies are managing transition risks as well as physical risks to their assets and operations. As such, we regularly engage with companies to communicate our belief that it is critical for issuers to provide robust environmental disclosures and both short- and long-term emission reduction targets. A recent example of an engagement effort relating to this emphasis on disclosures and goal-setting is with a Canadian oil and gas producer. We routinely met with the senior management team to set a long-term net-zero target and implement a set of more ambitious goals to reduce emissions by 2030. Given these conversations, we were pleased the company recently announced a new 2030 emissions target that is 25% more ambitious than its previous goal, as well as a 2050 net-zero target.

In our ongoing active engagement strategy we encourage all issuers to set specific, measurable ESG targets and to publicly report their progress within a specified timeframe to ensure accountability. Our deep relationships provide opportunities for transparent feedback on the most material ESG factors affecting industries and issuers, and the 2021 Corporate Credit Engagement Report further demonstrates our progress in engaging with issuers. A link to our engagement report is below.

2021 Corporate Credit ESG Engagement Report