Manulife Investment Management Develops Proprietary Sovereign Bond ESG model

News Release

                                               

For Immediate Release             
09/12/2019

Manulife Investment Management Develops Proprietary Sovereign Bond ESG model

Enhances sovereign analysis by accounting for increasing relevance of ESG risk exposures; Provides assessment for 199 countries

PARIS, FR, September 12, 2019 –Manulife Investment Management1 announced today, from the PRI in Person conference, that it has developed a proprietary sovereign ESG assessment model. Currently in use by its investment teams as an input into credit analysis, the model produces sovereign-specific baseline views on environmental, social, and governance (ESG) issues. The model incorporates ESG data from a variety of governmental and non-governmental sources on sovereign issuers and adjusts this data using input from Manulife Investment Management’s portfolio managers, analysts and dedicated ESG team. A momentum factor is then applied to help capture the trajectory of sovereigns’ ESG resilience.

The new model allows portfolio managers and analysts to quickly assess and apply the ESG strengths and weaknesses of sovereign debt issuers to their investment research, complementing Manulife Investment Management’s other analytical frameworks for sovereign bond investing. The introduction of the sovereign ESG assessment model is another step towards implementation of the firm’s ESG policy; that evaluation of material ESG risks and opportunities helps investors to better manage the risk/reward profile of their portfolios.

“As sustainability themes continue to shape the future success of the companies in which we invest, applying this kind of analysis to sovereign debt is a natural extension of our growing capabilities for an asset class that we believe is critical to our clients’ return objectives,” said Chris Conkey, Head of Public Markets, Global Wealth and Asset Management, Manulife Investment Management. “As active managers, we are committed to integrating ESG analysis and insights into the fundamental research for all of the major asset classes to help build better, risk-adjusted portfolios for our clients.”

The Model Explained  

The proprietary model currently provides analytical reporting for 199 countries with an assessment for each ESG pillar, a near-term momentum adjusted rating of 5 years or less, and a long-term momentum adjusted rating of 5+ years. Ratings are broken into five bands: very strong, strong, moderate, weak, and very weak.

The ratings are generated using historical macroeconomic data, real-time indicators, and country classifications that compare nations to a relevant peer group:

  • Historical data used for the environmental factor includes water resource management, energy consumption and intensity, air quality, and resource conservation; data for the social factor includes human capital, education readiness, contract enforcement, and civil liberties; and data for the governance factor includes government strength and political stability, corruption perception, and fiscal transparency.
  • Real-time analysis of sovereign-specific characteristics provides a forward-looking view of ESG materiality. These include current events and severe controversies, significant economic dependencies (e.g., on a narrow commodity export profile) or policy implementation that creates risk, and findings from sovereign engagements conducted by investment and/or ESG team.
  • The concept of ESG ‘momentum’ is applied as an adjustment to the raw ESG scores based on an assessment of a nation’s climate resilience and political reform agenda.
  • Proprietary country classifications (developed markets, two tiers of emerging markets, and frontier markets) are based on factors such as GDP, income, corruption perception, and market liquidity and are designated by the research and investment teams.
  • The model results in a short-term and long-term view of ESG impact for sovereign debt. In the short-term (<5 years) ESG rating, the governance factor has the highest weight, followed by the social factor, and the environmental factor with the lowest weight. In the long-term (>5 years) rating, each of the governance, social and environmental factors are more equally weighted, recognizing the rising impact and relevance of environmental and social factors to nations over time – for example, the physical impact of climate change and the wealth in/equality are likely to affect the long-term stability of governments.

 

“We have developed a model to standardize ESG integration in sovereigns to not only set a consistent methodology across our global teams, but also to provide long-term analysis aligned with how investors use these bonds in portfolio construction,” said Emily Chew, Global Head of Environmental, Social and Governance Research and Integration at Manulife Investment Management. “This is especially relevant as environmental and social factors tend to have a long-term relationship with sovereign creditworthiness.”

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About Manulife Investment Management

Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than 150 years of financial stewardship to partner with clients across our institutional, retail, and retirement businesses globally. Our specialist approach to money management includes the highly differentiated strategies of our fixed-income, specialized equity, multi-asset solutions, and private markets teams—along with access to specialized, unaffiliated asset managers from around the world through our multimanager model. Our personalized, data-driven approach to retirement is focused on delivering financial wellness in retirement plans of all sizes to help plan participants and members retire with dignity.

Headquartered in Toronto, we operate as Manulife Investment Management throughout the world, with the exception of the United States, where the retail and retirement businesses operate as John Hancock Investment Management and John Hancock, respectively; and in Asia and Canada, where the retirement business operates as Manulife. Manulife Investment Management had C$844 billion (USD $645 billion) in assets under management and administration as of June 30, 20192. Not all offerings available in all jurisdictions. For additional information, please visit our website at manulifeinvestmentmgt.com.

2.Source: MFC financials. Global Wealth and Asset Management AUMA at June 30, 2019 was C$844 billion and includes C$191 billion of assets managed on behalf of other segments and C$136 billion of assets under administration.

 

 

Media Contacts:

 

Asia

Carl Wong

Carl_KK_Wong@ManulifeAM.com

 

Canada

Giovana Chichito

Giovana_Chichito@manulife.com

 

 

U.S. and Europe

Elizabeth Bartlett

Elizabeth_Bartlett@JHancock.com

 

PR 499566