At Neuberger Berman, we integrate environmental, social and governance (ESG) factors throughout our fundamental credit research process. Active engagement is a crucial element of our approach, helping to identify credit risk, and guide issuers toward practices that can enhance their credit profile over time.
In light of a changing landscape of disclosure standards and expectations, the Non-Investment Grade Credit team recently conducted our second annual roundtable discussion, meeting with 34 corporate issuers. Joined by our ESG Investing colleagues, we explained our ESG approach and general trends in the industry, and offered practical guidance for issuers.
Among the key points to emerge:
- ESG factors continue to gain importance for investors, reflected in the growing number that are shifting their investment focus toward ESG and the continued acceleration in inquiries about ESG practices that we receive from clients—all while the world has faced a crisis of historic proportions.
- Informational demands from investors are becoming more voluminous and specific, as their expectations grow for disclosure and improvement, particularly on social and climate practices.
- We provided overviews on various elements of our process, including our internal research, proprietary ESG ratings and scorecards, data science, climate risk assessments, and the use of select third-party data.
- For issuers, we argued that understanding the various metrics that could affect their ESG profile is crucial in seeking to both improve their scoring and to gain recognition among investors for their progress.
- Tactically, we suggested that issuers take a methodical approach to improvement, identifying and then acting in a few key areas that are closely aligned with their core businesses, and then reporting those changes publicly. Repeating this process can have a gradual, positive impact on perceptions and support credit stability.
- Although some investors may simply avoid certain carbon-heavy industries, like airlines or energy, others are open to investing in these industries where there is measurable progress toward long-term goals on efficiency and/or carbon offsets.
Given the rapidly evolving nature of ESG disclosure and performance standards, we believe that active engagement between investors and companies is crucial to maintain a common understanding of key information flows and needed evolution in policies and practices. The roundtable was just a small part of our efforts to facilitate dialogue. We look forward to our third annual roundtable next year and a continuing dialogue with company management.