Principled Investing

To mark the recent publication of the latest signatory assessment reports from the U.N.-supported Principles for Responsible Investment (PRI), today’s CIO Weekly Perspectives comes from Joseph V. Amato and guest contributor Jonathan Bailey, Head of ESG Investing.

Neuberger Berman has a long history with responsible investing. We were deploying “negative screening” as long ago as the 1940s. We established one of the first sustainable U.S. equity teams almost 30 years ago. As a firm, we have long believed that material environmental, social and governance characteristics are an important driver of long-term investment returns from both an opportunity and a risk mitigation perspective. We also understand that, for many of our clients, the impact of their portfolio is an important consideration in conjunction with investment performance.

It was therefore natural for us to sign onto the six Principles for Responsible Investment (PRI) back in 2012.

Launched in 2006 as an independent body supported by the United Nations, the PRI encourages investors to use responsible investment, an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns. While the Principles were intended to be voluntary and aspirational, the PRI has always expected signatories to report on their ESG integration activities. This transparency is helpful for asset owners that are seeking to understand the progress that asset managers are making on integrating ESG across a whole firm or within a particular asset class.

To give signatories feedback on how their progress compares to peers, the PRI conducts an annual assessment based on the reporting provided by signatories. We were delighted to receive our latest assessment recently, based on our 2018 Transparency Report. We achieved the highest possible score, A+, for our overall approach to ESG strategy and governance. We also scored A+ for integrating ESG into investment processes across all of our major asset classes.

These results put us above the median of the 1,120 investment managers who reported to the PRI this year—of the 69 with $250 billion or more in assets, only eight received three or more A+ grades that included one for overall strategy and governance and at least one for an equity and one for a fixed income category. Moreover, all our grades saw solid year-over-year improvement, even as the median score for investment managers fell in categories like private equity general partner selection and public equity ESG integration.

Collaborating and Contributing

But for us the PRI is about more than just scores. It is about contributing to the development of a more sustainable global financial system by promoting implementation of responsible investment through collaboration with our peers.

In that spirit, last week we convened a group of some of the small and mid-cap private equity general partners that we work with to share best practices for ESG integration. Naturally, the discussion focused on the range of practical tools, frameworks and guides that the PRI has developed to assist signatories on their ESG integration journey—such as standardized diligence frameworks, best practice ESG policies, and innovative portfolio monitoring and reporting approaches.

The good news is that more and more investment institutions are not only recognizing the value of ESG investing, but signing onto the Principles in order to demonstrate their commitment. Today, over 1,800 investment institutions are signatories, representing more than $70 trillion of assets. The hard work of the PRI’s global staff over the last decade has helped propel responsible investing from a cottage industry of boutiques to the mainstream of asset management around the world.

Develop and Innovate

The PRI continues to foster cooperation on market-wide ESG innovations. For example, through the PRI we have recently been involved in developing bondholder engagement guides and standardized due diligence questionnaires for hedge funds and private equity, encouraging better ESG analysis at credit rating agencies, and engaging collectively with dozens of the world’s largest carbon emitters.

This work supports our approach of making evaluation of material ESG factors a core responsibility of all equity and credit analysts. It enables us to draw the link between material ESG factors and the day-to-day reality of shareholder engagement that genuine active management demands, as well as the investing experience and judgment required to do it effectively. It raises the awareness needed to make bond issuers receptive to engagement by credit investors, especially in non-investment grade and emerging markets.

At Neuberger Berman, we do these things because we believe it benefits our portfolio companies and our clients’ returns. We also recognize that ESG is one of the fastest-moving and most exciting areas of investing—the issues that can affect cash flows or valuation are constantly changing, and the tools and data that we have to assess them with are improving every day. As a firm, we aim to be at the forefront of that development, and our progress toward that goal comes across clearly in our latest PRI assessment. The PRI continues to provide an invaluable forum for us to maintain our innovation, work collaboratively and, ultimately, support a more sustainable global financial system.

In Case You Missed It

  • U.S. Retail Sales: +0.5% in June
  • NAHB Housing Market Index: Flat at 68 in July
  • U.S. Housing Starts: -12.3% to SAAR of 1.17 million units in June
  • U.S. Building Permits: -2.2% to SAAR of 1.27 million units in June
  • Euro Zone Consumer Price Index: +0.1% in June month-over-month and +2.0% year-over-year
  • Japan Consumer Price Index: +0.8% year-over-year in June

What to Watch For

  • Monday, 7/23:
    • U.S. Existing Home Sales
    • Japan Purchasing Manager Index
  • Tuesday, 7/24:
    • Eurozone Purchasing Manager Index
  • Wednesday, 7/25:
    • U.S. New Home Sales
  • Thursday, 7/26:
    • U.S. Durable Goods Orders
    • European Central Bank Policy Meeting
  • Friday, 7/27:
    • U.S. 2Q 2018 GDP (first estimate)

– Andrew White, Investment Strategy Group

Statistics on the Current State of the Market – as of July 20, 2018

Market Index WTD MTD YTD
Equity      
S&P 500 Index 0.0% 3.2% 5.9%
Russell 1000 Index 0.0% 3.1% 6.1%
Russell 1000 Growth Index 0.1% 4.2% 11.8%
Russell 1000 Value Index 0.0% 2.0% 0.3%
Russell 2000 Index 0.6% 3.3% 11.2%
MSCI World Index 0.2% 2.5% 3.2%
MSCI EAFE Index 0.6% 1.4% -1.0%
MSCI Emerging Markets Index -0.4% 0.6% -6.0%
STOXX Europe 600 0.5% 1.8% -1.4%
FTSE 100 Index 0.2% 0.6% 2.2%
TOPIX 0.9% 0.8% -2.9%
CSI 300 Index 0.3% 0.2% -11.8%
Fixed Income & Currency      
Citigroup 2-Year Treasury Index 0.0% 0.0% 0.0%
Citigroup 10-Year Treasury Index -0.5% -0.2% -2.9%
Bloomberg Barclays Municipal Bond Index 0.1% 0.4% 0.2%
Bloomberg Barclays US Aggregate Bond Index -0.3% 0.1% -1.5%
Bloomberg Barclays Global Aggregate Index 0.0% 0.0% -1.4%
S&P/LSTA U.S. Leveraged Loan 100 Index 0.1% 0.6% 2.5%
ICE BofA Merrill Lynch U.S. High Yield Index 0.1% 0.6% 0.7%
ICE BofA Merrill Lynch Global High Yield Index 0.2% 0.8% -0.7%
JP Morgan EMBI Global Diversified Index -0.2% 2.1% -3.3%
JP Morgan GBI-EM Global Diversified Index -0.2% 0.9% -5.6%
U.S. Dollar per British Pounds -0.8% -0.8% -3.2%
U.S. Dollar per Euro 0.3% 0.3% -2.5%
U.S. Dollar per Japanese Yen 0.5% -1.0% 0.7%
Real & Alternative Assets      
Alerian MLP Index 1.9% 3.1% 2.4%
FTSE EPRA/NAREIT North America Index -1.3% -0.5% 1.1%
FTSE EPRA/NAREIT Global Index -0.8% -0.3% -0.3%
Bloomberg Commodity Index -0.1% -4.2% -4.2%
Gold (NYM $/ozt) Continuous Future -0.8% -1.9% -6.0%
Crude Oil (NYM $/bbl) Continuous Future -3.9% -7.9% 13.0%

Source: FactSet, Neuberger Berman.

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PRI grades are based on information reported directly by PRI signatories, of which investment managers totaled 1,120 for 2018. All signatories are eligible to participate and must complete a questionnaire to be included. The underlying information submitted by signatories is not audited by the PRI or any other party acting on its behalf. Signatories report on their responsible investment activities by responding to asset-specific modules in the Reporting Framework. Each module houses a variety of indicators that address specific topics of responsible investment. Signatories’ answers are then assessed and results are compiled into an Assessment Report. The Assessment Report includes indicator scores – summarizing the individual scores achieved and comparing them to the median; section scores – grouping similar indicator scores together into categories (e.g. policy, assurance, governance) and comparing them to the median; module scores – aggregating all the indicator scores within a module to assign one of six performance bands (from E to A+). Awards and ratings referenced do not reflect the experiences of any Neuberger Berman client and readers should not view such information as representative of any particular client’s experience or assume that they will have a similar investment experience as any previous or existing client. Awards and ratings are not indicative of the past or future performance of any Neuberger Berman product or service.

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