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ESG

ESG Newsletter published on January 3, 2017

Impact Reporting: A New Path Forward

Not long ago, the concepts of sustainability and impact were viewed as relatively vague and hard to pin down. Companies, nonprofit organizations and investors alike struggled to define and articulate their sustainability goals and objectives. Material environmental, social and governance (ESG) issues were only starting to be defined, and impact measurement was in its infancy.

But over time, companies have become better at defining their sustainability strategies, and some government entities have begun to report sustainability plans. Access to high-quality data and metrics has improved. Organizations such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) have led the way to setting standards for integrated reporting. All of this has contributed to a new landscape, in which previously vague notions of sustainability and impact became more vivid and clear.

This evolution in analysis and reporting at the issuer level coincided with growing interest in sustainability and impact among investors. Individual as well as institutional investors are increasingly asking about the real-world implications of their sustainable and impact investments.

Improved quality of data and reporting coupled with growing client interest led us to develop our own impact-reporting methodology. Given our focus on high-quality corporate and municipal bonds, we immediately knew that we would need to be thoughtful and creative in our efforts. This would be a far more nuanced process compared to measuring the impact of direct private equity investments, where investors have full control of outcomes.

Our impact reporting philosophy rested on three key premises. First, we needed a framework that would apply to both corporate as well as municipal bonds in client portfolios. Second, our assessment needed to be viable across a range of issuers, some of whom are far more sophisticated than others when it comes to sustainability. Third, we believe in the importance of qualitative ESG research, which uses increasingly sophisticated issuer reporting and prioritizes unique, issuer-specific commentary.

Early on in developing our impact reporting, we chose to create a framework that would enable us to reflect our analysis in a clear, concise and consistent way across all issuers. Our priority was to offer clients a glimpse of what we see when we consider each credit.

In our ESG research and analysis, we prioritize materiality in evaluating issuers. This is particularly relevant for our qualitative ESG assessment, which reflects our views on the most material ESG factors. For reporting purposes, we decided to communicate our qualitative insights, but in a more succinct way. We believe that this level of information offers our clients a glimpse into our ESG analysis and a sense as to the impact of their investments.

Once collected, our succinct ESG summaries are aggregated into a database. From here, they are auto-integrated into our individual client portfolio reports. This overall process enables us to reference consistent information across all client accounts that are selected to receive impact reports. This new impact reporting is due to launch for our Sustainable Government Credit accounts this January, and will be expanded to additional accounts in the future.

While we believe that our impact reporting will offer a useful framework for our clients, we also recognize that the space continues to evolve and we are eager to evolve with it. As such, we will continue to refine our approach and innovate toward ever-better and more-sophisticated impact reporting. Along the way, we look forward to working with our clients and others to help lead the way in collective industry-level impact reporting innovation.

 

DISCLAIMER: The material in this document is prepared for our clients and other interested parties and contains the opinions of Breckinridge Capital Advisors. Nothing in this document should be construed or relied upon as legal or financial advice. Any specific securities or portfolio characteristics listed above are for illustrative purposes and example only. They may not reflect actual investments in a client portfolio. All investments involve risk – including loss of principal. An investor should consult with an investment professional before making any investment decisions. Companies mentioned are provided as illustrative examples and do not necessarily represent past, current or future portfolio holdings. This document may contain material directly taken from unaffiliated third party sources, including but not limited to federal and various state & local government documents, official financial reports, academic articles, and other public materials. If third party material is included, it is believed to be accurate, and reliable. However, none of the third party information should be relied upon without independent verification. All information contained in this document is current as of the date(s) indicated, and is subject to change without notice. No assurance can be given that any forward looking statements or estimates will prove accurate or profitable.