NOT TO BE REPRODUCED WITHOUT PRIOR WRITTEN APPROVAL.
PLEASE REFER TO ALL RISK DISCLOSURES AT THE BACK OF THIS DOCUMENT.

PUTTING PRINCIPLESINTO PRACTICERESPONSIBLE INVESTMENT ANNUAL REPORT 2021

PLEASE CONSIDER THE ENVIRONMENT BEFORE PRINTING.

FOREWORD
Since I wrote the foreword for the 2020 report,
all of us have continued to be severely affectedby the ongoing coronavirus pandemic. We havecollectively suffered from the economic andsocietal impacts of this crisis and the longerterm implications are also likely to be significant.
Abdallah NauphalThe speed and scale of the pandemic has
Abdallah Nauphal
Chief
Executive Officer
reinforced my conviction that environmental,
Chief Executive
Officersocial and governance (ESG) risks must be
analysed and taken into account when designing investment strategies. Insight’s
mission is to prioritise the certainty of meeting clients’ objectives. To achievethis, we seek to establish an accurate fair value for every investment thatincorporates a broad range of risk factors.
Although the relevance of ESG factors for fixed income investments is today
more widely acknowledged than it has ever been, I believe more progress is stillneeded. The dominant role of fixed income in financial markets and in portfolios,
coupled with the centrality of default risk for valuations, means that an ESG
approach should be a core component of any fixed income investment process.
We have continued to improve the methodology underpinning our proprietary
ESG and climate risk ratings. In 2020, 90% of our engagements with debt issuers
included discussions on ESG topics (up from 82% in 2019). We have alsoenhanced our ESG approach to liability-driven investment (LDI), secured financeand multi-asset investment.
In the wake of new regulations, of initiatives focused on sustainability, andthe rapid growth of the impact bond market, we have helped our clients fulfil
enhanced reporting requirements and take advantage of new opportunities.
We have also gone from partnering with clients to tailor strategies reflecting
customised ESG criteria, to launching dedicated investment strategies withsustainability objectives under our Responsible Horizons brand.
More broadly, as responsible stewards of society’s savings, we view thecommunities in which we operate as stakeholders in our business. We continue
to engage with relevant official and regulatory bodies to represent clientinterests and seek solutions which benefit both our clients and society at large,
actively engaging on issues such as the transition away from IBOR benchmarks,
EU derivative clearing regulations, and RPI reform.
I hope that this report provides you with answers to your questions anddemonstrates our commitment to continuous improvement in this field. Please
do not hesitate to get in touch with us if you would like more information or toshare your thoughts with us more broadly.

2

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

HIGHLIGHTS

09

17

22 24

DRIVING RESPONSIBLE
INVESTMENT ACROSSALL FINANCIAL MARKETSDEVELOPING DATA TOSUPPORT ANALYSISAND ENGAGEMENTPROACTIVE
ENGAGEMENTON ESG ISSUESSAFEGUARDINGOUR CLIENTS’
INTERESTS

Responsible investment is nolonger a niche pursuit, and inmany ways is perfectly suitedfor ﬁxed income investment

Insight’s Prime ratings aim tohighlight ESG and climate risks
to support better research andstewardship, and to help build
portfolios tailored to ourclients’ interests

In 2020, 90% of
1,210 engagements
included ESG issues

We continued toengage on industry
and regulatory issues
in seeking to reducerisks and costs for ourclients and millions ofpensioners

CORPORATEESG RATINGS

95%

33

CLIMATERISK RATINGS

global investment grade
corporate bonds covered1

ESG key
issuescoveredc.45

Universe of over

Based on over

1,700 200

credit analysts
guiding the model

issuers

14

data inputs

SOVEREIGN RISKAND IMPACT RATINGS
Covers123
countries

key climate-related
issues covered

37

44

risk metrics
impactmetrics

46

47

50

52

INVESTING FOR
IMPACT

SEEING THROUGH
IMPACT-WASHING

FOCUSED STRATEGIES FORRESPONSIBLE INVESTORSA RESPONSIBLE
PARTNER

Insight added over $2bn
of impact bonds to client
accounts in 2020. 187 client
accounts at Insight now
have exposure to impact
bonds

Only 40% of the impact
bonds we analysed fully
met our sustainability
expectations in 2020

The Responsible Horizons range ofinvestment strategies aim to help
investors achieve a ﬁnancial return
alongside other environmental orsocial objectives

Insight is offering
greater transparency
around our operations,with new diversity
targets for ourworkforce1
As measured using the Bloomberg Barclays Global Aggregate Credit Index, excluding non-corporate and non-debt constituents,using the total weight of the remaining benchmark instruments. This index consists mostly of investment grade corporate bonds.

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

3

4

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

CONTENTS

FOREWORD // 2
INTRODUCTION // 6
INVESTING RESPONSIBLY ACROSS MARKETS // 9
THE CASE FOR A RESPONSIBLE INVESTMENT APPROACH ACROSSFINANCIAL MARKETS // 10
RESPONSIBLE INVESTMENT IN PRACTICE // 15
HELPING OUR CLIENTS DEMONSTRATE A RESPONSIBLE INVESTMENT
APPROACH // 16
DATA IS CRUCIAL TO INFORM RESEARCH AND ENGAGEMENT INTO
ESG ISSUES // 17
INSIGHT CONDUCTS EXTENSIVE RESEARCH AND ENGAGEMENT // 22
ENGAGEMENTS ON MARKET AND INDUSTRY ISSUES // 24
CASE STUDIES // 26
IMPACT AND SUSTAINABILITY //45
FOR INVESTORS SEEKING A POSITIVE IMPACT // 46
RESPONSIBLE HORIZONS: A NEW RANGE FOR INVESTORSSEEKING A RESPONSIBLE APPROACH // 50
INSIGHT: A RESPONSIBLE PARTNER // 52
APPENDICES // 54
APPENDIX I. LEADING OUR RESPONSIBLE INVESTMENT PROGRAMME // 54
APPENDIX II. IMPACT BOND PURCHASES 2020 // 55
APPENDIX III. WEAPONS POLICY // 59
APPENDIX IV. VOTING POLICY // 60
APPENDIX V. SHAREHOLDER VOTES IN 2020 //63

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

5

INTRODUCTION
WE BELIEVE A RESPONSIBLE INVESTMENT APPROACH CAN HELP EVERY INVESTOR AS
THEY SEEK TO PURSUE THEIR LONG-TERM FINANCIAL AND NON-FINANCIAL OBJECTIVES.
IN THIS REPORT WE AIM TO HELP INVESTORS CONSIDERING A RANGE OF ISSUES.

KNOWLEDGE: For investors seeking to understand what responsible
investment means across their portfolios, we explain why a responsible
approach is crucial for fixed income, and outline how we are helping our clientsto adopt a responsible approach.
EVIDENCE: For investors seeking evidence of the difference a responsible
investment approach can make, we offer recent examples from our own
portfolio managers across LDI, fixed income and other areas.

IMPLEMENTATION: For investors seeking a positive long-term impact with
their portfolio, we provide an update on the surging impact bond market andoutline our new range of strategies focused on helping investors achieve afinancial return alongside other environmental or social targets.

09
15
45

We hope you find this report useful as you put a responsible investment approach into practice.

6

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

Figure 1: Insight is a responsible investment leader – recent highlights

2017

2017

2018

First pooled
ESG fundClimate risk
ratings
introduced

2017

First proprietary ESG rating
for a private company

Signatory to Task Force on
Climate-related Financial
Disclosures (TCFD) initiative

2020

PRI ratings
all A+

2019

2018

2021

Corporate risk ESG
ratings introduced

Sovereign risk ESG
ratings introduced

Sovereign impact ESG
ratings introduced

Insight's responsible investment credentials• Insight was a founding signatory to the UN-supported Principles for Responsible Investment (PRI) in 2006, theworld’s leading proponent of responsible investment. Signatories to the PRI include investment managers andasset owners with trillions of dollars of assets under management.
• In 2020, we were awarded A+ ratings across the relevant categories in the PRI survey, including corporate andsovereign debt.2• We have been supporters of the Institutional Investors Group on Climate Change (IIGCC) and CDP (formerly the
Carbon Disclosure Project) initiatives for over 15 years.
• Insight manages ESG strategies including those with best-in-class, climate, positive impact and exclusion
objectives and criteria. We manage more than £11.7bn in ESG strategies.2
Table 1: Insight's 2019 PRI ratings3
Insight PRI rating

Industry medianFirm strategy and governanceA+

A

Investment grade

A+

B

High yield

A+

B

Emerging market

A+

B

Money market

A+

B

Rates

A+

B

Collateralised loan obligations (CLOs)

A+

B

Asset-backed securities (ABS)

A+

B

Loans

A+

B

PRI scores are graded from the highest rating (A+) through to the lowest (E). PRI rating for securitised finance isapplied to CLOs and ABS. Corporate PRI rating applied to money markets and loans. PRI ratings are not available forother strategies, including LDI, multi-asset and currency.

2
As at 31 December 2020. Assets under management (AUM) are represented by the value of cash securities and othereconomic exposure managed for clients. 3 PRI Annual Assessment Report, 2020. For more information, please visit
https://www.insightinvestment.com/responsible-horizons/pri-ratings/

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

7

INVESTINGRESPONSIBLY
ACROSS
MARKETSResponsible investment is about taking all risks into account, for both theshort and long term. This is not a niche approach relevant to only a few
investors, or just part of a portfolio – we believe the right way to invest for
the long term is to invest responsibly.
Properly understood, such an approach will apply across all financial
markets. In this section, we make the case for investing responsibly in
fixed income.
Historically, much attention has focused on equity markets, butbondholders can benefit from a responsible approach, both in terms ofrisk management and in the additional influence that fixed income
investment offers.

RESPONSIBLE INVESTMENT HAS TRADITIONALLY FOCUSED ON SHAREHOLDERS AND THEIR INFLUENCEOVER MANAGEMENT DECISIONS, BUT FIXED INCOME ASSETS ARE THE FOUNDATION OF MANY INVESTORS’PORTFOLIOS AND DOMINATE GLOBAL FINANCIAL MARKETS.

SUMMARY
We believe investing responsibly in fixed income can be crucial for investors looking to achieve either financial or sustainability
objectives.
• Responsible investors cannot ignore fixed income assets, with annual issuance c.40 times that of equity markets• Assessing debt issuers’ sustainability is vital for investors, given the centrality of default risk
• Bondholders’ influence can reach much further than that of equity investors• Bondholders can pursue precise sustainability targets• The scope of responsible investment activities in fixed income is set to expand further

RESPONSIBLE INVESTORS CANNOT IGNOREFIXED INCOME ASSETS

Figure 2: Fixed income issuance dwarfs equity issuance4
25

Fixed income assets are a core allocation within many, if not
most, investors’ portfolios.
Individuals value the relative certainty that fixed income canbring compared with equities, especially as they approachretirement.
Institutional asset owners with substantial liabilities, likepension funds and insurers, value the asset class for its ability
to help hedge interest rate and inflation risks, and for thecontractually defined returns that fixed income instruments
offer. A focus on contractually defined returns has become agrowing trend for maturing pension schemes: as they
approach their endgame, schemes pay out more in pension
income than they receive from investment returns andsponsor contributions, making the contractual income fromfixed income a key component of their strategy.
The centrality of fixed income is illustrated by the amount of
global issuance, which is many times larger than the equity
market (see Figure 2). The role of these assets in investor
portfolios, and their dominance across global markets, meanthese assets cannot be ignored as investors seek to invest
responsibly in pursuit of their goals.

4$0.5trn20
US$trnINVESTING RESPONSIBLY ACROSS MARKETSTHE CASE FOR A RESPONSIBLE INVESTMENT
APPROACH ACROSS FINANCIAL MARKETS

15$21.0trn

10
5
0

2011

2013

2015

2017

2019

 Global equity issuance  Global ﬁxed income issuance

ASSESSING DEBT ISSUERS’ SUSTAINABILITY IS
VITAL FOR INVESTORS• ESG risks can define whether a debt issuer defaults– making them significant for investors• There are many examples of ESG risks having a significant
financial impact• The relevance of ESG risks is widely acknowledged byinvestor groups and credit rating agencies
The core focus for fixed income investors is the risk of an
impairment to their coupons or return of principal. Any
material risk that could affect whether an issuer fulfils theseobligations – including ESG risks – will be relevant to investors’
analysis.

Source: 2020 Capital Markets Fact Book, published by the Securities Industry and Financial Markets Association (SIFMA).

10

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTS

This is a central pillar of a responsible investment approach,and reflects a fixed income investors’ natural focus on thesustainability of an issuer’s operations and its ability to afford
financial obligations.
For example, for investors seeking to achieve a specificoutcome, such as pension schemes with defined pension
obligations, maximising the certainty of achieving this specificoutcome is key. Investing with precision, including analysis of
ESG risks to help ensure accurate valuations and effective risk
management, is crucial.
The potential materiality of ESG risks is widely acknowledged.
There are many examples of such risks having a material
impact on the pricing of a bond, or leading issuers to default.
The PRI has established the ESG in Credit Risk and Ratings
Initiative to “enhance the transparent and systematic
integration of ESG factors in credit risk analysis”5, of which
Insight is a founding Advisory Council member, and global
credit ratings agencies now incorporate ESG evaluation within
their analysis6.

BONDHOLDERS CAN HAVE FAR-REACHING
INFLUENCE OVER GOVERNMENTS AND
COMPANIES

the debt rather than equity markets. This means that fixedincome investors can have influence on entities and market
sectors that are inaccessible to other investors.
Opportunities for dialogue are often regular. For many
institutions access to finance from the bond market is an
ongoing necessity, either to fund new projects or roll overexisting debt. This stands in contrast to the equity market,
where issuance is comparatively rare.
While for major debt issuers, a single investor or asset
manager can sometimes have little effect, collaborative
initiatives – where investors work together to achieve a
common goal – can have a meaningful impact.
Famously, when describing the power and influence of debt
markets on the global financial system, Clinton-era Democratic
adviser James Carville said: “I used to think if there wasreincarnation, I wanted to come back as the president or thepope or a .400 baseball hitter. But now I want to come back as
the bond market. You can intimidate everybody.”
This power means fixed income markets can play a central rolefor investors seeking to influence governments and corporates,
whether that is to achieve their financial or sustainability
objectives.

• Fixed income investors can access markets and sectors thatare inaccessible to other investors• Regular debt issuance provides opportunities for frequentengagement• Collaborative initiatives can have a major impact
Fixed income investors may seek to engage with debt issuers
to better understand the ESG risks they face, how they
manage them, and in order to encourage them to improvetheir practices.
When it comes to engagement, headlines typically focus on
the power of shareholders who have voting powers thatenable them to influence, and if necessary replace, company
executives. The reality, however, is that fixed income
investors’ influence can far outstrip that of equity investors;
primarily due to a range of institutions dependent on debt
capital markets for financing.

Fixed income investors’
influence can far outstripthat of equity investors;
primarily due to a range ofinstitutions dependent on
debt capital markets forfinancing

Debt markets provide finance to a wide range of entities,
including sovereigns, supranationals and agencies, as well as
many companies, some of which prefer to raise finance using

https://www.unpri.org/investment-tools/fixed-income/credit-risk-and-ratings
For example, credit ratings agencies Moody’s (https://esg.moodys.io/), Standard & Poor’s (https://www.spglobal.com/ratings/en/
products-benefits/products/esg-in-credit-ratings) and Fitch Ratings (https://www.fitchsolutions.com/products/fitch-ratings-esgrelevance-scores-data) offer ESG-specific analysis.
5
6

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

11

INVESTING RESPONSIBLY ACROSS MARKETSBONDHOLDERS CAN PURSUE PRECISESUSTAINABILITY TARGETS

investors, but there is still work to be done to refine what thismeans in practice.

• Fixed income investors can demand changes to thestructure and terms of debt issuance

Fixed income markets encompass a wide range of issuers andinstrument types. While the basic principles of a responsible
investment approach will remain consistent across them, thepractical implications will be different. For example, mostanalysis of ESG and sustainability risks has focused on
corporate debt, with research into their impact on sovereign
debt still in a developmental phase. Much of this is down tothe availability of good-quality data which is still moreaccessible at a corporate level. Similarly, in secured finance,
managing the impact of ESG risks on a residential mortgagebacked security will be very different to a commercial realestate loan, for example.

• Bonds targeting specific environmental and social
outcomes are now widely available• Tailored portfolios with specific sustainability objectives are
possible using fixed income assets
When debt is issued, fixed income investors can influence thestructure and terms of the issuance. A bond with unattractive
terms could lead to financing on less favourable terms for anissuer. In rare cases, an issuer may withdraw an issue if there is
not enough demand and sometimes change terms or
documentation language to comply with investors’
requirements.
The regularity of debt issuance, combined with investors’ability to influence the terms and structure, mean fixed income
assets offer the potential for meaningful influence.
Investors can target sustainability outcomes in a way that
other asset classes – such as equities – cannot offer.
In the now mainstream ‘use-of-proceeds’ bond market,
issuance can be linked directly to specific projects with apositive environmental and/or social impact (the mostcommon are ‘green bonds’, where bond proceeds are used tosupport environmental projects), or wider goals – such as the
UN Sustainable Development Goals (SDGs). Some bonds alsobuild in targets at the broader institutional level, such that if
sustainability targets are met, the issuer benefits from more
attractive financing terms; and similarly, if targets are missed,
the investor receives compensation for this failure.
The growth of the so-called ‘impact bond’ market means thatdebt issuers across a wide range of markets and sectors,
including sovereigns and private companies, are being
encouraged to pursue explicit sustainability objectives.
It also means that, through fixed income markets, investors
are able to tailor their portfolios and objectives to reflect bothfinancial and sustainability targets in new, innovative ways –more than other financial instruments.

NEW OPPORTUNITIES ARE YET TO EMERGE• ESG risks are widely analysed for corporate debt, but lessso for sovereign and other types of debt issuance• More work is needed to develop ESG and sustainability data
and research across fixed income markets

Overall, investors are at the beginning rather than end of theirjourney with respect to integrating a responsible investment
approach into their fixed income portfolios. However, as
investor practices evolve, the focus on ESG risks andsustainability factors could provide investors with further
opportunities to build portfolios that can target both financial
and sustainability targets with greater precision, creating
better outcomes for all stakeholders.

HOW INSIGHT IS DRIVING RESPONSIBLE
INVESTMENT FORWARD
Investing responsibly across global markets is a multi-faceted
endeavour. At Insight, we have continued to enhance ourapproach as we seek to implement and push forward bestpractice in responsible investment management. We believe
we have done so in several ways.
• Develop in-depth data models to support effective
analysis and engagement: There is an overwhelming arrayof data on ESG factors, including climate change. However,the data available also has inconsistencies and gaps. For
many years Insight has sought to harness the available data
to support our investment decisions and our engagementswith the entities in which we invest.
To find out more about our Prime ESG and climate risk
ratings, see page 17.
• Conduct qualitative research and proactive engagement
to understand risks and encourage improvement: We
use data to highlight and help us identify potential risks, but
we believe qualitative judgement is required to help ensure
we are assessing risks appropriately. Where we identify
potential material risks, or we believe improvement ispossible, we may engage proactively with an entity to findout more or encourage change.

A responsible approach to fixed income, taking ESG risks andfactors into account, can support an investor’s financial andsustainability objectives. This is now widely appreciated by

12

To find out more about how we consider risks and engage
proactively across our different strategies, see page 26.

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTS• Offer transparency on risks and engagement: Investors
require more information on the risks in their portfolios –both as a result of greater awareness around some risks,such as climate change, but also because new regulations
and initiatives are encouraging greater transparency withregard to ESG and sustainability issues. We seek to offer
detailed reports to our clients outlining ESG risks and detailsof engagements, both to support their decisions and help
them comply with local regulations.
To see an example of the data we might offer, see ourbreakdown of engagements made across our business in2020 – which reflects the information we offer to our clients– see page 22.

• Participate in collaborative initiatives: Many of the mostpressing ESG issues we face require a collective response
from the investment community and from wider society.
We therefore work with our clients, other investors,
governments, companies and civil society organisations tobuild knowledge and awareness, to share expertise and tocreate a common voice on these issues when engaging
with stakeholders in relations to our clients’ investments.
To read more about some of the collaborative initiatives inwhich we participate, see page 23.

Overall, investors are at the beginning rather than end of theirjourney with respect to integrating a responsible investment
approach into their fixed income portfolios. However, as investor
practices evolve, the focus on ESG risks and sustainability factors
could provide investors with further opportunities to build portfoliosthat can target both financial and sustainability targets with greater
precision, creating better outcomes for all stakeholders.
JOSHUA KENDALL, HEAD OF RESPONSIBLE INVESTMENTRESEARCH AND STEWARDSHIPPUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

13

RESPONSIBLE
INVESTMENT
IN PRACTICE

Responsible investment in practice takes many forms. Understanding how
a responsible investment approach makes a difference to investment
decision-making, return potential and risk management can be complex.
In this section we:• Show how clients can demonstrate a responsible approach(see page 16)• Explain our proprietary ESG and climate risk ratings, which inform ouranalysis, engagements and tailored portfolios (see page 17)• Demonstrate the extent of stewardship and engagement activities wepursue (see page 22)• Outline major initiatives we have undertaken to safeguard investor
interests (see page 24)• Offer practical examples of ESG analysis in action (see page 26)

RESPONSIBLE INVESTMENT IN PRACTICEHELPING OUR CLIENTS DEMONSTRATEA RESPONSIBLE INVESTMENT APPROACH
THE GROWTH AND DEVELOPMENT OF INDUSTRY-WIDE INITIATIVES AND NEW REGULATIONS ARE
ENCOURAGING INVESTORS TO PURSUE A RESPONSIBLE INVESTMENT APPROACH.

Develop a responsible investment policy: Investors continue to develop responsible investment approaches for avariety of reasons.
We have offered guidance to our clients to help them clarify their beliefs about responsible investment, establish a
responsible investment policy, and implement a responsible approach.
Comply with disclosure requirements: New regulations are obliging investors to disclose their attitude to responsible
investment and to report on how they are implementing their approach.
We are working with our clients and their advisers to develop in-depth reports that provide the risk and engagement
data they need to fulfil all requirements that apply to them.
Examples include the requirement for UK pension schemes to report on how they implement responsible investment
policies; the mandatory TCFD reporting regime in the UK, announced in late 2020 (see Figure 3); and ESG disclosure
requirements in the European Union, such as the Sustainable Finance Disclosure Regulation (known as SFDR).
Anticipate new developments: More regulations and initiatives are being announced over time.
We are seeking to proactively help our clients as new obligations emerge. We note the ongoing discussions in the US
concerning ESG disclosures. We actively engage on wider issues: see page 24 for more information.
Figure 3: Roadmap towards mandatory TCFD-aligned disclosures in the UK7

2021

2022

Ocupational
pensionschemes(>£5bn)Ocupational
pensionschemes(>£1bn)Banks, building
societies andinsurance companies(deadline forsupervisory
expectations)

Largest UKauthorised asset
managers, life
insurers and
FCA-regulated
pension providers

Premium listedcompanies

2023
Other UKauthorised asset
managers, life
insurers and
FCA-regulated
pension providers

2024-25
Other occupational
pension schemes(subject to review)
Potentional further
requirements tomeasure across
categories including
in response to
evolving bestpractice

UK registeredcompanies
Wider scopeof listed companies

Source: HM Treasury. For more information please see
https://www.gov.uk/government/publications/uk-joint-regulator-and-government-tcfd-taskforce-interim-report-and-roadmap

7

16

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTSDATA IS CRUCIAL TO INFORM RESEARCHAND ENGAGEMENT INTO ESG ISSUESESG RISKS CAN HAVE A CLEAR IMPACT ON THE FINANCIAL PERFORMANCE OF AN INVESTMENT.

Insight is focused on precision investment and risk management to help our clients achieve their goals. Information on material ESG
risks can be crucial for effective investment decisions, but ESG data providers often disagree, and there are gaps in available
information.
We decided to apply our years of experience in analysing ESG risks in taking data from multiple inputs, adjusted using our in-house
expertise, to generate ESG ratings that we believe more accurately and reliably reflect material risks.
This led us to create Prime: Insight's proprietary ESG ratings, with ESG and climate risk ratings focused on corporate issuers, and
ESG risk and impact ratings for sovereign issuers.
More information on our Prime ratings is available at www.insightprime.com.

We are very aware of the importance of sustainability information
when it comes to achieving financial outcomes. This led us to ask
how we could apply our expertise and knowledge to develop afixed income solution. The result is Prime – a solid foundation that
we believe helps our portfolio managers and analysts make better
decisions, and helps our clients understand more about theirportfolios and the risks they are exposed to.
ADRIAN GREY, GLOBAL CHIEF INVESTMENT OFFICER

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

17

Prime corporate ESG ratings are based on separate environmental, social and governance ratings, which in turn rest on 33 separate
scores for a wide range of key ESG issues.
The ratings are generated using inputs from numerous ESG data providers, adjusted for quality and relevance by Insight’s credit
and data experts, who also weight them according to their significance for different sectors.
Prime corporate ESG ratings were created to generate ESG ratings that we believe more accurately and reliably reflect the risks that
corporates face.
They aim to help our analysts and portfolio managers consider material ESG risks, informing their decision-making andengagement, and to enable portfolios for clients requesting specific sustainability criteria.
Read more about the Prime corporate ESG ratings at www.insightprime.com.
Figure 4: The Prime corporate ESG model

Quality and safety

Responsible
investment

Supplychain

Health anddemographic risk
Health andsafetyHumancapitalFinancial security

OM

ER

TRO

VER

SY

l

a

Go

VER
SY

lobbying

Accounting

MACRO

CON

Carbonemissions
Governancecontroversy Policy andr

Anti-competitive
practices

R
OU
VI

Carbon ﬁnancing
and exposure

ve

HA
BE

Product footprint

Ownership

nce

nt

RAL
NATU AL
IT
P
CA

ATE
CORPOR E
ANC
GOVERNna

WatermanagementPay

E n vir o n m e

ON

Board

N

CO

POLLUTI

Biodiversity
and land use

O
TR

Y

RS

VE

SocialTRO

Pollution and waste

18

RC
WO

ST

CON

Socialcontroversy

RK

CT

CU

Environmental
controversy

Raw material
sourcing

FO

DU

Customer
relations

Labourmanagement

E

PRO

Controversial
sourcing
Privacy anddata security

C
CH LIMAN AT
GE E

RESPONSIBLE INVESTMENT IN PRACTICE

PRIME CORPORATE ESG RATINGS

Financial Conﬂict
systemBusiness ethics
Corruption andinstability
Media andmarketingTaxtransparency

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTSCASE STUDY: WIRECARD – PRIME CORPORATE ESG RATINGS IN ACTION
Wirecard, the German payments company, filed for insolvency on 25 June 2020 after the group revealed overindebtedness and reported incidences of fraud.8
Having issued an investment grade bond in September 2019 at a yield of around 0.5%, in less than 12 months
holders of this bond had lost c.80% of their investment value.
Figure 5: Wirecard's debut bond has recorded a material loss9

Bond price (EUR)

100
80
60
40
20
0
Sep 19Dec 19Mar 20Jun 20

It is another in a long line of examples of how ESG risks can have a material impact on the creditworthiness of acompany. We believe this justifies our integration of ESG analysis in our credit research process, which has been inplace since Insight's launch.
• Wirecard was third percentile according to its Prime corporate ESG rating (ESG rating 5; governance rating 5),
whereas third-party data providers offered very different assessments.
• Insight met with Wirecard management in early 2019 ahead of its debut bond issue. Primarily as a result of its
ESG profile, Insight had no exposure to Wirecard in any of its fixed income portfolios.
No risk assessment can be 100% certain and fraud is notoriously difficult to identify. However, with Wirecard
receiving the worst possible Prime corporate ESG rating versus its peer group in Q4 2019 (when the ratings wereintroduced), we believe it is worth considering how best to identify companies like this that have poor management
practices and weak sustainability profiles.
We believe there are three lessons that we can take away from this event when assessing ESG risks:1

Do not rely on a single data provider

2

There’s more value in analysing the underlying inputs than the headline scores

3

Apply qualitative judgement to overweight the bigger risks

https://www.ft.com/content/ac949729-6167-4b6c-ac3f-f0aa71aca193
Source: Bloomberg. As at 30 June 2020. Bond issued in September 2019, denominated in euros, maturity date 11 September 2024.
For illustrative purposes only.
10
https://www.insightinvestment.com/investing-responsibly/perspectives/wirecard-three-lessons-for-investors-on-esg-risks/
8
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PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

19

Climate change is one of the greatest challenges of our time. Governments and businesses are grappling with the implications, andresponsible investors will be seeking to discern how climate change might affect the entities in which they invest.
In 2017, Insight Investment introduced our climate risk ratings, which we believe to be the investment industry’s firstcomprehensive ranking of fixed income corporate credit issuers focusing on climate change-related risks and opportunities. The
ratings are aligned with the framework developed by the Financial Stability Board’s TCFD, and we have enhanced our frameworkover time to incorporate more data and detail.
The Prime climate risk ratings aim to highlight the key climate risks companies face, including how corporate issuers are positioning
themselves for the transition to the low carbon economy.
Read more about the Prime climate risk ratings at
https://www.insightinvestment.com/investing-responsibly/perspectives/monitoring-corporate-climate-risks/
Figure 6: The Prime climate risk model

GovernanceRegulations

Operations

Physical pillar rating
Issuers ranked in line withthe worst key issue risk

Acute

Chronic

Integration

Emissions

Products
and services

Fire

Coastal ﬂood

Targets

Reporting

Value chain

Flood

Water stress

Leadership

Coldwave
Heatwave

PILLARS

Transitional pillar rating
Issuers ranked universally,
across sectors/industries

THEMES

Issuers rated using
the worst of thetwo pillars

KEY ISSUESKEY ISSUESTHEMESPILLARSPRIME
CLIMATERISK RATINGMETRIC SCORESRAW DATAINPUTMETRIC SCORES

Hurricane

RAW DATAINPUTRESPONSIBLE INVESTMENT IN PRACTICE

PRIME CLIMATE RISK RATINGS

20

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTSPRIME SOVEREIGN RISK AND IMPACT RATINGS
Almost six years since the Paris Agreement, and against a backdrop of unprecedented uncertainty, investors are sharpening theirfocus on the sustainability and impact risks of individual countries.
We first launched our proprietary sovereign ESG risk ratings in 2018 to facilitate in-depth analysis of ESG factors for sovereign debt.
This year we are introducing the third generation of our sovereign ESG framework, which generates distinct ESG risk and positive
impact ratings.
The sovereign ESG risk ratings focus on ESG factors that have relevance to debt repayment, while the impact ratings focus more on
factors related to the UN Sustainable Development Goals (see Figure 7). While there is a certain degree of overlap between theindicators used in each model, they generally use different sets of metrics.

IMPACT MOMENTUM SCORE:

IMPACT RATING

A

B

C

D

E

Broadly
improving

Somewhat
improving

StableSomewhat
deteriorating

Broadly
deteriorating

RATING / SCORERATING / SCORE

Figure 7: The Prime sovereign impact model

SCREENED METRICS

8
6
4
2

UN SDGs

0

UN SDGs

SCREENED METRICSNORMALISED SCORES 0-100

67 metrics aligned to the 17 UN Sustainable Development Goals

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

RAW DATAINPUT

RAW DATAINPUT

Screen out 37 metrics based on data coverage, suitability for impact and measurability

21• In 2020, Insight conducted 1,210 engagements, of which 90% incorporated discussions of ESG issues– up from 82% of 1,151 engagements in 2019
• Across every industry sector, most of our engagements with management incorporated ESG matters• Insight is a proactive member of a range of industry associations and participates in collaborative
initiatives to support engagements on material issues
Figure 8: Insight engaged proactively on ESG matters through 202011

ESG issues coveredin engagement?

2020
Yes 82%
1,210 No 18%
engagements

 Yes
 No

59.8%
17.6%
13.5%
5.4%
2.6%
1.0%
0.2%

How weengageEngagement
by sector

Other issues

New issue/
refinance

Results/general

Business policies/
strategy

GovernanceissuesSocial issues

Environmental
issuesEngagement activity by theme

Overall

%

90%
10%

 Executive-level Investor relations
 Treasury
 Capital markets
 Other Board-level Sustainability

Who weengage with

100
80
60
40
20
0

2019
Yes 82%
1,151
 No 18%
engagements

ESG issues coveredin engagement?

 Yes
 No

82%
18%

 Group call/meeting Private call/meeting Presentation
 Other exchange

58.3%
31.5%
7.5%
2.7%

 Financial
 Consumer, non-cyclical Basic materials
 Energy
 Utilities
 Industrial
 Communications
 Consumer, cyclical Technology
 Other (including

38.8%
12.6%
9.7%
8.4%
7.4%
7.0%
6.9%
6.9%
1.2%

governments)

1.2%

Figure 9: Across all sectors, most of our engagements address ESG issues (% of total)12
100
80
60
40
20
0

%

RESPONSIBLE INVESTMENT IN PRACTICE

INSIGHT CONDUCTS EXTENSIVE RESEARCHAND ENGAGEMENT

Who weengage with
Basic Communications Consumer, Consumer,
materials
cyclicalnon-cyclicalExecutive
level

EnergyFinancial

Industrial

Other

Technology

How weengageUtilities Government

723
59.8
Group call/meeting
Investor
relations213
17.6
Privatecall/meeting
No
Yes


Treasury163
13.5
Presentation
11, 12
Source: Insight. As at 31 December 2020.
Capital markets
65
5.4
Other exchange
Other
32
2.6
Grand Total
Board level
12
1.0
22
Sustainability PUTTING PRINCIPLES INTO PRACTICE:
2 RESPONSIBLE
0.2 INVESTMENT ANNUAL REPORT 2021
Grand Total
1210

BACK TO TABLE OF CONTENTS

INSIGHT PARTICIPATES IN A RANGE OF ASSOCIATIONS AND COLLABORATIVE INITIATIVESMemberships• UK Sustainable Investment and Finance Association (UK SIF), since 2002
• CDP (formerly known as Carbon Disclosure Project), since 2003
• Institutional Investors Group on Climate Change (IIGCC), since 2003
• UN-supported PRI initiative, since 2006
• International Capital Market Association (ICMA) – Green and Social Bond Principles, since 2019
Initiatives• UK Stewardship Code (since 2012)• Climate Action 100+ (since 2017)• PRI Credit Risk and Ratings Advisory Council (since 2017)• TCFD (since 2018)

Highlights from 2020
Supporting global sustainability reporting standards
The richness and variety of data available to inform investment decisions has grown significantly in recent years and this has
enabled fixed income investors to take much more considered views on factors they consider relevant to performance.
Yet the increased complexity and unevenness of sustainability data presents a risk to investors and our clients who can findthemselves bewildered by the lack of consistency and comparability. This has led us to develop proprietary models to support our
research and engagement (see page 17).
We therefore welcomed the International Financial Reporting Standards Foundation (IFRS) Foundation’s proposal to take leadershipin developing globally consistent sustainability reporting standards, which we believe is a positive step in confronting sustainability
disclosure problems for investors.13
Our response to the consultation is available upon request.
UK social housing sustainability reporting
Insight is part of a working group seeking to encourage investment in social housing by establishingstandards for the sector’s reporting on ESG criteria. Insight has invested in the housing association sector
on behalf of its clients, and we believe it often underplays its best-in-class approach to ESG issues. The
working group published a white paper on the topic, proposing reporting criteria and themes for adoption
by the sector.14

The ESG Social Housing Working GroupTHE SUSTAINABILITY REPORTING
STANDARD FOR SOCIAL HOUSING
The final report of the ESG Social Housing Working GroupNOVEMBER 2020

This resulted in the development and launch of the Sustainability Reporting Standard for Social Housing.15
A significant number of housing associations have committed to adopting the standard, and we areproactively encouraging housing associations to adopt the standard or produce equivalent reporting.

Click to read

UK Stewardship Code 2020
The UK Financial Reporting Council (FRC) introduced a revised Stewardship Code (the Code) last year, taking
effect from 1 January 2020.

FOR ISSUE IN THE UK AND EU. FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLYNOT TO BE REPRODUCED WITHOUT PRIOR WRITTEN APPROVALPLEASE REFER TO ALL RISK DISCLOSURES AT THE BACK OF THIS DOCUMENT

Insight is committed to fulfilling the reporting and transparency requirements of the updated Code, and wehave published a full response.
We are pleased the FRC has broadened the Code to capture all asset classes, especially fixed income, in linewith our recommendations during the consultation phase.16

Responsible Stewardship at Insight
2021

Click to readMore information on the IFRS initiative is available at https://www.ifrs.org/projects/work-plan/sustainability-reporting/https://thegoodeconomy.co.uk/resources/reports/UK-Social-Housing-Building-a-Sector-Standard-Approach-to-ESG-ReportingMay-2020.pdf 15 https://thegoodeconomy.co.uk/news/sustainability-reporting-standard-launched-with-tackle-the-uks-housing-crisis
16
More information on the Code is available at www.frc.org.uk
13
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23

RESPONSIBLE INVESTMENT IN PRACTICEENGAGEMENTS ON MARKETAND INDUSTRY ISSUESAS A RESPONSIBLE INVESTOR, WE TAKE A PROACTIVE ROLE IN ENSURING THE LONG-TERM
SUSTAINABILITY AND RESILIENCE OF THE MARKETS IN WHICH WE OPERATE. THIS IS IN OUR CLIENTS’
LONG-TERM INTERESTS, AS WELL AS THAT OF WIDER SOCIETY. IN THIS SECTION WE OFFER HIGHLIGHTSOF OUR EFFORTS TO ENGAGE ON SIGNIFICANT REGULATORY AND MARKET ISSUES.

RPI REFORM
Insight has driven the national conversation on proposed reforms to the UK's Retail Prices Index (RPI) – reforms which could
have negative implications for millions of pensioners.
In September 2019, Her Majesty's Treasury published letters between the Chancellor of the Exchequer and the Chair of the UK
Statistics Authority on proposed changes to RPI. These suggested the UK government was on a pathway to amend the underlying
calculation of RPI to align the measure with the Consumer Prices Index including owner occupiers' housing costs (CPIH), the main
measure of UK inflation from March 2017.
If RPI is simply aligned with CPIH then, all else being equal, we believe pension fund benefits received by millions of people would be
reduced – and it could result in a transfer of wealth from index-linked gilt holders to the UK government of £90bn to £120bn.
Pension schemes with CPI-linked benefits, hedged with index-linked gilts will be especially impacted by the proposed change.
Our aim has been to draw attention to the potential impact of the proposed change and to ensure everyone has an opportunity tomake their voices heard. Our most significant actions include:• In November 2019 we published a detailed white paper and open letter urging pension funds, insurers,
advisers and asset managers to engage with policymakers about the future consultation.
• We launched a dedicated website, www.rpireform.com, to connect with a broader audience of
stakeholders and collate news articles in a single resource.

FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY.
PLEASE REFER TO THE IMPORTANT INFORMATION AT THE BACK OF THIS DOCUMENT.

PLEASE CONSIDER THE ENVIRONMENT BEFORE PRINTING.

PROPOSEDCHANGES TO RPINOBODY NEEDS TO LOSE OUTNOVEMBER 2019

• In March 2020 we wrote to the Chancellor and the Chair of the UK Statistics Authority urging that theconsultation deadline, then set for 22 April 2020, be extended given the unprecedented backdrop causedby the coronavirus pandemic. The deadline was subsequently pushed back to 21 August 2020.17• We made our response to the consultation available to clients and consultants to provide an additional
information point to help others prepare their own responses.

Click to read

KEY DEVELOPMENT: In November 2020, the government announced it would go ahead with planned reforms, with the RPI/
CPIH alignment beginning from 2030. However, we believe our extensive engagement on behalf of our clients exemplifies
how a responsible LDI manager should engage on wider issues affecting their clients, and believe there will be more
opportunities to engage on this topic.

EMIR AND CENTRAL CLEARING
Insight is proactively engaging on key issues on behalf of pension schemes across Europe, responsible for the current and future
income of millions of European pensioners.
In collaboration with European pension fund stakeholders, Insight has actively engaged with European policymakers and regulatorsfor several years over the introduction and implementation of central clearing for derivatives, particularly over the implications forpension funds, under the European Market Infrastructure Regulation (EMIR).18 Insight has also been an active participant in theEuropean Commission’s expert group on finding long-term solutions to the pension fund clearing exemption.
https://www.insightinvestment.com/rpi-reform/perspectives/letter-consultation-on-rpi-reform/ 18 For a range of pastcommunications and policy responses from Insight, including on issues related to central clearing, please see
https://www.insightinvestment.com/investing-responsibly/perspectives/our-literature/.
17

24

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTS

Insight firmly supports the principles behind central clearing and has made significant investments into
clearing-related infrastructure. However, we have worked to highlight important factors which regulatory
bodies need to consider and address before European pension funds are required to clear. Given theseissues, we advocated for the original exemption for pension scheme arrangements from clearing, to prevent
market dislocations and ensure the needs of pension funds are met.

FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLYNOT TO BE REPRODUCED WITHOUT PRIOR WRITTEN APPROVALAPRIL 2020

REGULATORY UPDATEESMA REPORT ON CENTRAL CLEARING
AND PENSION SCHEMESTHE EUROPEAN SECURITIES AND MARKETS AUTHORITY (ESMA) HAS PUBLISHED ITS FIRST REPORT AND
CONSULTATION ON CENTRAL CLEARING SOLUTIONS FOR PENSION SCHEME ARRANGEMENTS. WE WELCOME
THE REPORT AND ITS RECOGNITION OF THE KEY CHALLENGES THAT FACE PENSION SCHEMES CONSIDERINGCENTRAL CLEARING.
Insight Investment, in collaboration with European pension fund stakeholders, has actively engaged with European policymakers andregulators for several years over the introduction and implementation of central clearing for derivatives, particularly over the
implications for pension funds. 1 Insight has also been an active participant in the European Commission’s expert group on finding longterm solutions to the pension fund clearing exemption.
Insight firmly supports the principles behind central clearing and has made significant investments into clearing-related infrastructure.
However, we have worked to highlight important factors which regulatory bodies need to consider and address before European
pension funds are required to clear. Given these issues, we advocated for the original exemption for pension scheme arrangementsfrom clearing, to prevent market dislocations and ensure the needs of pension funds are met.
We believe the report marks a significant step forward and encourage European pension funds to engage with the consultation.

KEY ISSUES HIGHLIGHTED FOR PENSION FUNDS
We are encouraged that the report from ESMA 2 recognises a range of issues we have highlighted in recent years. These include:• Central counterparties (CCPs) require variation margin be posted as cash, which would force pension funds to either materially
increase their cash allocations, or to establish access to short-term liquidity by other means that could introduce more risks andcosts• Operational and legal barriers prevent CCPs from accepting non-cash collateral as variation margin• Bank capital rules, particularly the leverage ratio, have discouraged bank intermediation in the repo market – reducing overallliquidity and therefore the ability of pension funds to access needed liquidity via the repo market

In April 2020, the European Securities and Markets Authority (ESMA) published its first report andconsultation on central clearing solutions for pension scheme arrangements. We were encouraged that thereport from ESMA19 recognised a range of issues we have highlighted in recent years.

• The repo markets have experienced episodes of stress in recent history, demonstrating that pension funds cannot rely upon them instressed market conditions• A potential solution that could be explored would be for central banks to provide emergency liquidity arrangements in stressedmarket conditions to ensure pension funds can access liquidity when required

NEXT STEPS: CONSULTATION RESPONSE
Insight will respond to the consultation. We are also preparing a joint response in collaboration with European pension stakeholders. We
remain an active member of the European Commission’s expert group.
• UK pension fund clients: Solutions developed by European policymakers will not apply to UK pension schemes in the future due toBrexit, but we expect European developments will help to set the direction for UK regulations. We are engaging with UK
policymakers directly to establish a formal structure under which we might discuss relevant issues as the UK leaves Europe.

1

Click to read

For a range of past communications and policy responses from Insight, including on issues related to central clearing, please see
https://www.insightinvestment.com/uk/responsible-investment/ri-literature-library/.

2

https://www.esma.europa.eu/press-news/esma-news/esma-consults-clearing-solutions-pension-scheme-arrangements-under-emir

KEY DEVELOPMENT: After Brexit, EMIR does not recognise UK pension funds for the purposes of the clearing exemption,
though some national regulators are allowing their domestic banks to trade on that basis. We are encouraging a coordinatedsolution to this to enable UK pension funds to continue trading with EU banks while benefiting from the clearing exemption.
In the UK, we have engaged with the UK Treasury to help ensure EMIR was adapted to ensure UK pension funds are correctly
defined and continue to benefit from the clearing exemption. Also, the UK rules recognise some third-country pension
schemes, including EU schemes after Brexit, ensuring that EU pension funds can trade with UK banks while remaining
exempt from clearing.

LIBOR TRANSITION
Insight is playing an active role in the interest-rate benchmark reform process, which will have implications for financial
markets worldwide.
In July 2017, Andrew Bailey, then Chief Executive of the Financial Conduct Authority, made a speech in which he declared that the
FCA had persuaded LIBOR panel banks to agree to continue LIBOR submissions until the end of 2021, after which it could notguarantee that the rate would continue to exist. Firms were advised to transition away from the rate.
In 2017 we created an internal working group to bring together key personnel from across the business. The purpose of this group
was to ensure that we were at the heart of the debate, protecting our clients’ interests and minimising any disruption to theirinvestments as the market transitions away from LIBOR. In 2018 we were invited to join the UK Working Group on Sterling Risk-Free
Reference Rates (RFR) as it was expanded to include a broader group of participants, including investment management firms.
In addition, we have participated in the:• RFR Tough Legacy Taskforce, which examines regulatory dependencies associated with LIBOR transition.
• RFR Buyside Forum, which was later replaced by the LIBOR transition working group, hosted by the Investment Management
Association, with the aim of facilitating and encouraging benchmark transition amongst buy-side firms.
• ISDA Working Group on LIBOR and the SONIA Oversight Committee, set up to focus on fallback rates in derivative contracts.
• SONIA Oversight Committee, which reviews and challenges all aspects of the benchmark determination
and administration process.

FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLYNOT TO BE REPRODUCED WITHOUT PRIOR WRITTEN APPROVALPLEASE REFER TO THE IMPORTANT INFORMATION AT THE BACK OF THIS DOCUMENTHELPING CLIENTS PREPARE FOR
THE TRANSITION AWAY FROM LIBORAPRIL 2020

• Insight is a member of the Loan Market Association (LMA) and receives regular updates on the dialogue
between the LMA and relevant parties. Insight has met with the CEO of the LMA regarding the transition.
• In addition, we have participated in various consultations, including the ISDA Benchmark Fallback
Consultation, in which we recommended the ‘compounded setting in arrears rate’ for the adjusted risk-freerate and the ‘historical mean/median approach’ for spread adjustment. Both of these choices were chosen
by the majority of respondents. We believe this approach will minimise uncertainty for clients.

WHAT IS LIBOR AND WHY IS IT CHANGING?
The London Interbank Offered Rate (LIBOR) has been in existence
since the 1970s, but the first official fixings from the British
Banking Association started on January 1, 1986. The rate
became the cash benchmark for a broad range of financial
instruments over time. In 2013, the G20 requested the Financial
Stability Board (FSB) investigate reforming LIBOR following aseries of regulatory breaches by international banks who werefined for manipulating the rate.

Insight is playing an active role in the interest-ratebenchmark reform process:•In 2017 we created an internal working group to bring
together key personnel from across the business. The
purpose of this group was to ensure that we were at theheart of the debate, protecting our clients’ interests andminimising any disruption to their investments as themarket transitions away from LIBOR.

•

In 2018 we were invited to join the UK Working Group on
Sterling Risk-Free Reference Rates (“RFR”), which was setup
by the Bank of England, as it was expanded to include a
broader group of industry participants including investment
management firms.

•

In addition, we have participated in the:SONIA
The FSB report was published in July 2014 1, and led to the Bankof England (BoE) setting up the Working Group on Sterling RiskFree Reference Rates in March 2015.
In April 2017, the group selected a reformed version of theSterling Overnight Interbank Average Rate – SONIA, a rate which
has been in existence since 1997 – as the new UK risk free rate.
SONIA is calculated based on the interest rate paid on unsecured
overnight sterling wholesale transactions of £25m or more,
conducted in London by listed money market institutions.

o

RFR Tough Legacy Taskforce, which examines
regulatory dependencies associated with LIBOR
transitiono

RFR Buyside Forum, which was later replaced by
the LIBOR transition working group, hosted by theInvestment Management Association, with theaim of facilitating and encouraging benchmark
transition amongst buy-side firmsoISDA Working Group on LIBOR and the SONIA
Oversight Committee, setup to focus on fallback
rates in derivative contractso

SONIA Oversight Committee, which reviews andchallenges all aspects of the benchmark
determination and administration process

THE END OF LIBOR?
In July 2017, Andrew Bailey, Chief Executive of the Financial
Conduct Authority, made a speech 2 in which he declared that
the FCA had persuaded LIBOR panel banks to agree to continue
LIBOR submissions until the end of 2021, after which it could notguarantee that the rate would continue to exist. Firms wereadvised to transition away from the rate. A similar process isoccurring in other jurisdictions which use LIBOR however whilst
the end dates are consistent (end 2021) their timetables andprogress are independent of the UK.
Since 2014, the administration of LIBOR has been carried out byIntercontinental Exchange Benchmark Limited (ICE). ICE hastaken measures to reform the calculation of LIBOR, with
contributing banks shifting to a new ‘Waterfall Methodology’
from 1 April 2019 3. ICE is actively engaging with banks globally,
with the aim of continuing to publish LIBOR post 2021, but there
is no guarantee that the rate will be liquid or pass regulatory
tests after this date.

•

Insight is a member of the Loan Market Association (LMA),
via BNY Mellon, and receives regular updates on the
dialogue between the LMA and relevant parties.

•

Insight has taken part in various consultations, including the
ISDA Benchmark Fallback Consultation in which werecommended the ‘compounded setting in arrears rate’ forthe adjusted risk-free rate and the ‘historical mean/medianapproach’ for spread adjustment. Both of these choices
were chosen by the majority of respondents. We believe
this approach will minimise uncertainty for clients.

Click to read1 https://www.fsb.org/wp-content/uploads/r_140722.pdf

3 https://www.theice.com/iba/libor

2 https://www.fca.org.uk/news/speeches/the-future-of-libor

KEY DEVELOPMENT: In March 2021, ICE Benchmark Administration (IBA), which administers LIBOR,
announced it would cease publication of LIBOR across several currencies at the end of 2021, with some US dollar rates tocease publication in 2023. This marked a significant step in the transition away from LIBOR benchmarks.

19

https://www.esma.europa.eu/press-news/esma-news/esma-consults-clearing-solutions-pension-scheme-arrangements-under-emir

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

25

RESPONSIBLE INVESTMENT IN PRACTICE

CASE STUDIESRESPONSIBLE INVESTMENT TAKES MANY FORMS. WHILE WE APPLY THE SAME OVERARCHING
PRINCIPLES IN EACH ASSET CLASS AND INVESTMENT STRATEGY, THE EMPHASIS WITHIN EACH WILL
DIFFER. IN THIS SECTION, WE OUTLINE THE MAJOR INITIATIVES WE HAVE UNDERTAKEN ACROSS A
RANGE OF DISCIPLINES IN 2020 TO SAFEGUARD INVESTOR INTERESTS.

Liability-driven investment
Jos Vermeulen, Head of Solution Design“We continued to lead the national conversation on RPI reform, which will have major implications
for UK pension schemes and other holders of index-linked gilts.”

Investment grade credit
Lucy Speake, Head of European Credit and Deputy Head of Fixed Income“In 2020, we formally integrated quantitative analysis of climate risks within our strategic credit
portfolios, alongside our new ESG ratings.”

High yield
Ulrich Gerhard, Senior Portfolio Manager“Our proprietary ESG data model and questionnaires support our efforts to identify ESG risk factors
to ensure that those we believe to be material can be reflected in our high yield credit process,despite ongoing significant gaps in third-party ESG data in the broader high yield debt market.”

Emerging market corporate debt
Simon Cooke, Portfolio Manager“Against a backdrop of generally higher ESG risks across emerging markets, we take a forwardlooking approach, seeking to anticipate improvements in how companies manage ESG andsustainability factors.”

Sovereign debt
Cynthia Mar, Sovereign Analyst“We proactively engage with sovereign issuers on new conventional and sustainableissuance.”

26

28
30
32
33
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PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTS

Secured financeShaheer Guirguis, Head of Secured Finance“We have instigated an engagement with other global asset managers to drive culture change andimprove disclosures on ESG risks across secured finance assets.”

Loans
Lorraine Specketer, Portfolio Manager“In 2020, we introduced proprietary ESG questionnaires for prospective borrowers.”

Cash
Chris Brown, Head of Money Markets“We now monitor and analyse ESG ratings within our cash investment universe. We have alsochanged our approach to exclude investments in tobacco and fossil fuels.”

Multi-asset
Matthew Merritt, Head of Multi-Asset Strategy Group“We pursued the market development of tradeable derivatives on ESG indices and expanded
the range of instruments with specific ESG criteria in our flagship multi-asset strategy.”Specialist equities
Andy Cawker, Head of Specialist Equities“We use our proprietary ESG ratings to help us identify good-quality franchises, with solidmanagement teams running their operations in the right way.”

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

35
38
39
40
43

27

RESPONSIBLE INVESTMENT IN PRACTICE

LIABILITY-DRIVEN INVESTMENT
Jos Vermeulen
Head of Solution Design

KEY INSIGHT
	We continued to lead the national conversation on RPI reform, which will have major implications for
UK pension schemes and other holders of index-linked gilts.

Q

How do you integrate responsible investment into your investment process?

We believe a responsible approach is crucial for all liability-driven investment (LDI) strategies.
Investing responsibly includes taking all relevant and material risks into account. With this in mind, ESG considerations areimportant factors in respect of the investment securities and instruments held, and the derivative counterparties used. Insightembeds ESG analysis in our LDI portfolio management process and we engage actively with bond issuers and counterparties.
A notable change in 2020 was our decision to raise the profile of ESG risks borne by derivative counterparties within ourCounterparty Credit Committee meetings, as indicated by our Prime corporate ESG ratings (see page 17 for more information).
Our aim is to ensure that the ESG ratings of counterparties are fully incorporated into our discussions with those counterparties,
focusing on those with the worst ratings (see Table 2). We are encouraged to see more engagement at a counterparty level.
Analysis and engagement with counterparties are important in helping mitigate investment risk for clients. Another area weconsider key is supporting sustainable markets; Insight works with regulators and policymakers to help manage regulatory andlegislative risks effectively for our clients.
In 2020, to further enhance our responsible investment governance structure, we established an LDI Working Group with a
specific remit to focus on responsible investment issues for the LDI strategies and mandates we manage.
To help our clients understand the ESG risks borne by their counterparties and how they are managed, we provide our ESG ratingsfor derivative counterparties to our LDI clients. Our focus is on how these ratings may affect the creditworthiness of counterparties,
and we seek to help our clients understand how these factors may be material for risk-management decisions.
We also provide engagement data, outlining specific engagements with counterparties as well as an overview of our broader workon wider issues relevant to LDI. As well as providing clients with this information, this activity has also served to help them comply
with new regulatory requirements regarding ESG disclosures.
Table 2: A sample of the ESG ratings generated for Insight’s derivative counterparties20
Counterparty

ESG Overall

Environmental

SocialGovernanceCounterparty A

3

2

3

4

Counterparty B

3

1

4

4

Counterparty C

2

2

2

3

Counterparty D

2

1

2

3

Counterparty E

3

1

4

4

20
Source: Insight Investment. As at 31 December 2020. ESG ratings range from 1 (best) to 5 (worst). For more information on
Insight's Prime corporate ESG ratings, please see page 17.

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Q

What are good examples of engagements in 2020 in light of your ESG analysis?

In 2020 we proactively engaged with clients, policymakers and key stakeholders on proposed changes to the RPI measure of
inflation, leading the national conversation on the proposals, which would have major implications for UK pension schemes. In
November 2020, the government announced that it would go ahead with planned reforms, despite substantial concerns being
raised during the 2020 consultation from a broad range of market participants. However, we believe our extensive engagement on
the issue on behalf of our clients was a clear example of how a responsible LDI manager should engage on wider issues affecting
their clients.
We also continued to engage on the transition away from LIBOR, and on issues around central clearing for European pension
schemes. See page 24 for more information on these initiatives.
Separately, we worked with LDI clients to help them address ESG factors within their hedging portfolios. For example, we arehelping one large pension scheme understand the climate risk exposure within credit assets used for liability hedging, and anotherlarge scheme to map its portfolios against non-financial, such as environmental, goals.
Finally, a notable development in 2020 was the announcement by the UK
government that it will issue its first green gilt in 2021, subject to market
conditions. We expect issuance before the 2021 United Nations Climate Change
Conference (also known as COP26) in November 2021. This is a welcome
commitment and could enable pension schemes to achieve their broader
environmental objectives while investing prudently to reach their financial
targets. We engaged directly with the UK Debt Management Office on the
proposed issuance. For more information on this proposal, please read ourpaper on the topic.

Click to readWe provide our ESG ratings forderivative counterparties to
our LDI clients. Our focus is on
how these ratings may affectthe creditworthiness of ourcounterparties, and we seek to help
our clients understand how thesefactors may be material for riskmanagement decisions.
JOS VERMEULEN

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RESPONSIBLE INVESTMENT IN PRACTICEINVESTMENT GRADE CREDIT
Lucy Speake
Head of European Credit and Deputy Head of Fixed Income

KEY INSIGHT
	In 2020, we formally integrated quantitative analysis of climate risks within our strategic credit
portfolios, alongside our new ESG ratings.

Q

How do you integrate responsible investment into your investment process?

ESG continues to be integrated into everything we do. Our analysts look at all material risk factors, including ESG issues where
relevant. We make sure our credit analysts have clear incentives to maintain their focus on ESG; they understand that integration of
ESG factors into their research gives them a better understanding of the long- term risks which could materially impact the default
risk of a company, while also helping them select the stocks that may perform better in the medium to long term. This is reflected in
the performance appraisal process.
As part of our process, for companies where information provided by external providers is lacking, we send out questionnaires that
include questions on ESG risks. Our impact bond framework is integrated into daily morning credit discussions around new issues,
and we look to see how it meets our internal ratings framework and whether there are incremental impact benefits (see page 47 formore on our impact bond framework) while also maintaining a financial focus on risk and reward.
In 2020, we amended one of our key tools, the 'landmine checklist', that aims to highlight key risks for all our credit analysts andportfolio managers, to include climate risk as a discrete risk alongside ESG and other credit-material factors (see Figure 10).
Figure 10: Insight’s landmine checklist of material default risks for credit issuers

Liquidity

Assuming no access to capital markets in the next 24 months, what is the impact on
the issuer’s liquidity?

Regulatory risk

To what extent is the issuer’s industry subject to regulation and changes in regulation?

Environmental, social,governance (ESG)Is the issuer properly managing environmental, social and governance risks?

Climate risk

What is the issuer’s exposure to transitional or physical climate risk?

Leveraged buyout (LBO) risk

Is the business likely to be subject to an approach from or a bid by private equity?

Event risk

Does the management have an appetite for debt ﬁnanced M&A? Is the company’s shareprice underperforming?

Each factor scored 1 (good) to 5 (bad)30

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Q

What are good examples of engagements in 2020 in light of your ESG analysis?

On a sector basis, we retain our stance against holding longer-dated tobacco companies in our strategic credit portfolios as wehave seen a market shift away from the once lower-risk tobacco companies.
In 2020, we sold holdings in the freight transportation company Burlington Northern Santa Fe Railway Company within our strategic
credit portfolios. Relative to its peers and standard market practice, the issuer's governance rating is weak. We sought to engage
with the company to better understand its approach and encourage improvement, but given the lack of willingness to engage,
coupled with our belief that the bonds were not trading in line with these risks, we decided to exit our position.
We also continued a range of long-term engagements with different companies. For example, we engaged again with Temasek, an
influential investment holding company used by the government of Singapore, on ESG issues. Temasek became a supporter of the
TCFD in 2020, two years after we encouraged them to do so in a previous dialogue. We believe the size and influence of Temasek
will serve to drive more companies to increase their climate change and ESG disclosures.

FOCUS ON STRATEGIC CREDIT
Adam Mossakowski
Head of Strategic Credit, Fixed Income
ESG risks are particularly pertinent for strategic credit portfolios, which invest in assets on along-term basis. Understanding the impact these risks can have on the companies in which weinvest is a long-established part of our investment process. Those impacts might range from short-term risks to acompany’s creditworthiness or reputation, to longer-term concerns about commercial viability or the impacts ofclimate change.
To help us make those determinations we use our proprietary Prime corporate ESG ratings, which help us highlightthe risks, but also assess and even rank companies relative to their peers. This gives us a quantitative frameworkthat we can use to screen out worst-in-class offenders. Since 2020 this screening has been further supplemented by
the integration of our Prime climate risk ratings. For more information on our Prime corporate ESG and climate risk
ratings, see pages 17 to 20.
Supplemented with traditional qualitative analysis, we now have a robust process to identify problematiccompanies and challenge their practices. And that engagement process itself can be telling. An inability or lack ofdesire to work with bondholders can be an indication of poor governance. Conversely, an open two-way dialogue
channel can give us the information and confidence to understand where a company is heading in the long term andhow it might react to changes in circumstance.
It is also important to note that our focus is not purely on default risk; many of the issues we highlight are ‘tail risks’ that
may never materialise. However, they are risks nonetheless, and we believe investors should be compensated forthem. As such, we see ESG and climate risks as key in making relative-value determinations. Viewed through this lens,
we can use our ESG and climate risk ratings to build more efficient and resilient long-term strategic portfolios.

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RESPONSIBLE INVESTMENT IN PRACTICE

HIGH YIELD
Ulrich Gerhard
Senior Portfolio Manager

KEY INSIGHT	Our proprietary ESG data model and questionnaires support our efforts to identify ESG risk factors toensure that those we believe to be material can be reflected in our high yield credit process, despiteongoing significant gaps in third-party ESG data in the broader high yield debt market.

Q

How do you integrate responsible investment into your investment process?

For many years we have emphasised to our clients that ESG risks can be more significant in high yield markets than for investment
grade debt. Given their capital structures, certain high yield issuers have a smaller cushion to cope with risks – including ESG – that
may cause a sudden, unexpected deterioration in credit quality. Further, some sectors with more material ESG risks, such asenergy, tend to account for a large proportion of the high yield debt market.
As a result, taking ESG risks into account has long been an essential part of our high yield debt analysis, with governance typically
being the most important issue. We consider the materiality of ESG risks, any mitigants in place, and the direction of travel, before
determining whether those risks are reflected in the trading price.
Despite this heightened potential impact from ESG factors, as credit risk increases, third-party ESG data coverage actually
decreases. In 2020, we noted a clear increase in attention paid to ESG factors in high yield debt, and these risks have become partof the day-to-day dialogue across the market. We welcome the increased attention and transparency around these risks: high yielddebt issuers are often private and thus not covered by ESG ratings providers, and even for those that are covered, the quality andquantity of data available is often poorer than that for investment grade. We use a proprietary ESG questionnaire to help fill
information gaps, and we believe additional transparency will serve to support accurate research and analysis of issuers.

Q

What are good examples of engagements in 2020 in light of your ESG analysis?

Our investment decisions across our high yield portfolios are based on close engagement with management teams to understand
ESG risks, and encourage better management of those risks where appropriate. Governance issues are raised with high yield debt
issuers as a matter of course.
In 2020, an energy company with which we have a long-standing relationship completed our proprietary ESG survey for the firsttime. On engaging with the company they highlighted the increased use of gas rather than diesel in their machinery, reducing
emissions, and outlined how the move to digital working had resulted in a smaller impact from the COVID-19 pandemic than would
otherwise have been the case. We were positive about this engagement and the increased transparency from the company; wealso deemed it suitable for some portfolios with sustainability targets.
Separately, we engaged with a European car parts maker after our proprietary ESG rating was downgraded to 5 overall (the worst
possible rating), driven by a fall in its social rating to 5. The risks identified were product quality and safety, with an issue regarding
product reliability; supply chain management, where there was limited disclosure on the extent to which suppliers were certified;and labour management, with concerns around processes for restructuring and job losses. The company responded to ourquestions with additional information, and following a formal review by Insight's Responsible Investment Ratings Review Group,
the social rating was adjusted to 4 based on the new information provided during the engagement.

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EMERGING MARKET CORPORATE DEBT
Simon Cooke
Portfolio Manager

KEY INSIGHT
	Against a backdrop of generally higher ESG risks across emerging markets, we take a forwardlooking approach, seeking to anticipate improvements in how companies manage ESG andsustainability factors.

Q

How do you integrate ESG/responsible investment into your investment process?

Much of emerging market corporate debt is at an earlier stage in its ESG journey relative to developed market investment grade
debt. There is huge potential for positive change both in terms of a company's ESG risk profile and its support of the UN Sustainable
Development Goals, so we take a forward-looking approach when analysing issuers and their ESG risks, rather than focussing purely
on historical performance.
We analyse the ESG risks for each issuer, looking at how these risks are managed in practice, and the direction of travel. We avoid
issuers where the ESG risks are material, there is no plan to adequately address them, and/or those risks are not reflected in tradinglevels. Conversely, we do lend to issuers that currently, or are taking steps to, mitigate material ESG risks. That includes thoseissuers who may not manage their ESG risks very well today, but have a credible and measurable plan to materially improve overthe coming years. Such companies may have been subject to an ESG controversy, or suffered governance weaknesses, or faceenvironmental concerns, and thus trade at a premium. Where those issuers exhibit a commitment to change, we will discuss withthem how they might address their ESG problems. By partnering with the issuers, we are able to capture some of the structural
credit and sustainability improvements that we believe are on offer in emerging markets.

Q

What are good examples of engagements in 2020 in light of your ESG analysis?

We engaged with an Eastern European agribusiness that did not have a history of reporting or measuring water usage, a potentiallymaterial ESG risk factor for this company. We met with management to discuss risk materiality, need for measurement, disclosureand reduction plan. The company subsequently began disclosing water usage for oilseed processing, infrastructure and trading.
This year, its management plans to improve the accounting methodology to provide farming data in 2021. Given the issuer’s efforts
to address measurement and disclosure, and commitment to continue improving, in combination with our positive fundamental
outlook, we continue to hold the investment and discuss water usage.
An Asian battery maker came to the market with a debut issue in 2020. This company uses high-energy intensity production andincorporates raw materials such as cobalt, nickel, and lithium, without having clear knowledge of its supply chain. Financial and nonfinancial disclosures were limited. We engaged with senior management to discuss the credit and raise our concerns and followed
up with further discussions with management and syndicate. The issuer provided lacklustre responses and was not willing toproperly address the problems we raised. We therefore decided not to invest in the new issue.

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

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RESPONSIBLE INVESTMENT IN PRACTICE

SOVEREIGN DEBT
Cynthia Mar
Sovereign Analyst

KEY INSIGHT
	We proactively engage with sovereign issuers on new conventional and sustainable issuance.

Q

How do you integrate responsible investment into your investment process?

ESG integration is a fundamental part of our sovereign debt investment process. We have developed a sovereign ESG frameworkwith distinct sovereign risk and sovereign impact models that feed directly into the process. The risk model focuses on ESG factors
relevant to debt repayment, and the impact model focuses more on factors related to country development and all-round good
governance aligned to the UN’s SDGs. By splitting our sovereign ESG rating into risk and impact scores, we can tailor portfolios evenbetter to client preferences, allowing for greater focus on impact and sustainability as required. See page 21 for more informationon our sovereign ESG models.
The current ratings showcase the differences in approach. For example, while India has a relatively low rating in the impact model(116 out of 123 sovereigns), it ranks higher in the risk model (78 out of 123). This makes sense considering the different focus of thetwo models: India’s impact rating is worsened in particular by high air pollution (measured by particulate matter, or PM2.5) as wellas the country’s low proportion of environmentally protected land or marine areas. In contrast, its risk rating is supported by lower
risk in social factors such as India’s favourable age dependency ratio, but higher risk from governance factors such as the difficultyin enforcing contracts.

Q

What are good examples of engagements in 2020 in light of your ESG analysis?

The relevance of ESG factors for sovereign issuers continues to remain at the developmental phase, without the level of approachconsensus that is found at the corporate bond level. However, we continue to see strong growth in sovereign issuance in specialist
areas such as green and social bonds, which should provide an even greater platform for sovereign engagement.
We have participated in green and social bond new issuances from emerging markets including Hungary, Chile and Guatemala. We
use bond roadshows as a forum to actively engage with issuers. For example, Mexico is looking to issue a green bond and is in theprocess of building up its green bond programme. We have been engaging with representatives of Mexico during this process.
We have also actively engaged with Benin, another emerging market issuer, as they have clear issuance plans in international debt
markets. In recent dialogue, we provided feedback that some of the data transparency is not where it should be. As investors, weneed to see improved data transparency which ultimately feeds into governance ratings in our ESG framework.

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SECURED FINANCE
Shaheer Guirguis
Head of Secured Finance

KEY INSIGHT
	We have instigated an engagement with other global asset managers to drive culture change andimprove disclosures on ESG risks across secured finance assets.

Q

How do you integrate responsible investment into your investment process?

Awareness of ESG issues across secured finance assets continues to grow, and we believe Insight is leading efforts to encourage
issuers to consider and disclose ESG risks.
We consider ESG factors as part of the rigorous fundamental analysis undertaken on originators, which is vitally important to thedecision-making process. This includes detailed due diligence on the originators both prior to making an investment, as well as on
an ongoing basis.
We also seek to understand the ESG risks to which secured finance assets themselves may be exposed. Determining ESG ratings forsecured finance securities can be complex. There can be many stakeholders in the supply chain, and special purpose vehicles(SPVs) are often not discrete: for example, the mortgages within a SPV can change and so the ESG rating for the security can varyas the environmental quality of the houses might change over time.
However, we have identified a range of ESG characteristics relevant across secured finance assets (see Figure 11 overleaf).
To support our research, we have developed questionnaires for a range of sectors, and are developing more (see overleaf for moredetails). Of the questionnaires we issued in 2020, c.75% have elicited responses from liquid ABS issuers, and 100% for illiquid ABS(direct lending).

We have proposed a joint initiativewith other major global asset
managers to urge the developmentof key performance indicators on
ESG issues, and engagement withlocal regulators on these topics
SHAHEER GUIRGUIS

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35

RESIDENTIAL AND CONSUMERRESIDENTIAL AND CONSUMER

Energy efﬁcient buildings

Strong consumer protection practices

Electric vehicles in auto sector

Appropriate arrears/default process

ENVIRONMENTACOMMERCIAL
Energy efﬁciency is positive
for property values
Corporate teamanalyse key tenants

COMMERCIAL

L

Property usage (limited control)

S

L
IA
OC

RESPONSIBLE INVESTMENT IN PRACTICE

Figure 11: ESG considerations with secured finance market segments

Corporate credit analyst
team analyse key tenantsagainst ESG criteria

SECURED CORPORATESSECURED CORPORATES

Analyse each underlying loan,
including; carbon emissions, rawmaterial sourcing and waste

Analyse each underlying loan,
including labour practices,safety and data security

G O VERNANC

E

RESIDENTIAL AND CONSUMERCOMMERCIAL

SECURED CORPORATESStrong underwriting process
Quality of collateral info

Sponsor business plan/
spending covenants
Back-up servicing agent outlined
Sponsor analysis
Sponsor equity (risk retention)

CLO manager ESG process
CLO manager investment process
and governance structure
Key-man risk
Sponsor equity (risk retention)

Originator’s risk process
Back-up servicing arrangements
Sponsor equity (risk retention)

Given the different challenges across secured finance assets, how we respond to them varies depending on the type of asset.
• Consumer loans/mortgages: For securities based on underlying pools of consumer loans (such as credit card debt or auto
finance) and residential mortgages, originators vary in their ability and willingness to provide ESG data on the underlying assets.
INSIGHT ACTIVITY: We issue questionnaires focusing on ESG risks to all originators of securities based on consumer loans
or mortgages (see Figure 12). We may invest without a completed questionnaire, depending on our overall analysis of a
relevant issue.
• Commercial real estate loans/mortgages: Commercial real estate (CRE) loans are typically issued on a single commercial
property. This means it is relatively straightforward to ascertain relevant ESG risks. For example, environmental audits on large
buildings are typically available for review.
Commercial mortgage-backed securities (CMBS) derive returns from an underlying pool of commercial mortgages, and so facesimilar challenges to residential mortgage-backed securities, with limited ESG data available on the underlying pools. There are
exceptions, with ‘green’ CMBS coming to market and offering environmental data on the underlying assets.
INSIGHT ACTIVITY: ESG disclosures on the underlying assets for CRE loans are typically extensive and we take these into
account as part of our investment analysis.
We have developed new questionnaires for CMBS originators and are sending these out as new issues come to market.

36

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTS• Collateralised loan obligations (CLOs): CLOs purchase a pool of senior secured bank loans, made to sub-investment grade
businesses. They issue debt in tranches, with differing risk/return profiles derived from the seniority of the claim on the cashflows
generated by the underlying loans.
The structure of CLOs means investors usually depend on the originator to provide data on underlying loans, and ESG data is
typically limited.
INSIGHT ACTIVITY: Given the structure of CLOs our focus is typically on governance for the CLO manager. We intend toencourage greater ESG disclosures across CLO issuance in 2021, following the progress we have made on consumer andcommercial loans in 2020. When we review CLO managers, we ask specifically about ESG factors, and whether they
have a relevant policy integrated within their credit process. We also aim to discuss examples of loans they have rejected
due to ESG concerns. For credit-sensitive tranches we conduct a loan-by-loan review, and analysis by our loans teamincorporates ESG considerations where possible.
• Direct lending: Many companies seek to borrow money from non-bank lenders. Such loans are typically illiquid and therefore
offer higher yields than more liquid assets, all else being equal.
	

INSIGHT ACTIVITY: For any direct lending, we ask borrowers to provide information on ESG risks to which they are exposed,
and how they manage them. If a borrower does not provide this information we decline the loan. Credit analysts and portfolio
managers therefore have clear incentives to ensure that borrowers provide the necessary information on ESG factors.

Figure 12: Areas covered by our proprietary ESG questionnaire for consumer loans

ENVIRONMENT

Availability and disclosure of environmental metrics
Building energy efﬁciency and environmental stress testing
Is the impact of environmental regulations on loan recipients measured?
Is carbon impact part of origination practices?

CORPORATEGOVERNANCE
Board independence and diversity
CEO pay structure
Independence of risk and audit committees
Separation of Chair and CEO roles

Q

SOCIALDo affordability checks account for socio-economic circumstances?
Have inadequate practices led to legal proceedings?
Consumer practices for arrears and foreclosures
Frequency of defaults/foreclosures

PRODUCT
GOVERNANCE
Is the origination team’s compensation structure linked to volumes?
Comparison of origination process against industry standards
Do affordability checks include change of borrower circumstances?
Are lending policies reviewed regularly?

What are good examples of engagements in 2020 in light of your ESG analysis?

In 2020, we engaged with selected issuers to explore the potential for improved ESG disclosures for securities based on consumer
loans and mortgages. We sought to consider how we might encourage the wider industry to move forward on these issues.
These engagements highlighted a lack of willingness and ability on the part of some issuers to make progress. One major European
auto manufacturer, despite emphasising its ESG credentials at the corporate level, said the lack of demand from investors meant it
would not consider incorporating ESG disclosures in its asset-backed securities issuance in the short term. Other issuers were morepositive but faced technical challenges. Some bank issuers are seeking to take advantage of demand for ‘green’ issuance, but
relevant data has proved difficult to source for institutions that have gone through historical mergers and acquisitions, resulting in
information being spread across legacy systems.
These challenges ultimately led us to raise the issue with the Asset Management and Investors Council (AMIC) at the International
Capital Market Association (ICMA). We have proposed a joint initiative with other major global asset managers to urge thedevelopment of key performance indicators on ESG issues, and engagement with local regulators on these topics. An initiative
focusing on this issue was announced in March 2021.21
For more information, please see https://www.icmagroup.org/News/news-in-brief/icma-amic-statement-on-esg-transparency-ofasset-backed-securities/.

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37

RESPONSIBLE INVESTMENT IN PRACTICE

LOANS
Lorraine Specketer
Portfolio Manager

KEY INSIGHT
	In 2020, we introduced proprietary ESG questionnaires for prospective borrowers.

Q

How do you integrate responsible investment into your investment process?

Our analysis of syndicated loans has integrated ESG concerns much like our corporate bond investment process, with ESG andclimate risks identified as key factors that could lead to a sharp deterioration in a borrower's credit quality.
In 2020, we developed a proprietary loan ESG survey with our Responsible Investment Team. We now send this survey toborrowers to help us analyse new deals brought to the market and have had constructive engagement to date.
We have noted a wider drive among lenders for more disclosures of ESG risks, and more loans have come to market that include
terms focusing ESG-specific targets, such as commitments to adjust margins if specified targets are met.

Q

What are good examples of engagements in 2020 in light of your ESG analysis?

Our proprietary loan ESG surveys directly support our active engagements with company management.
In 2020, a private higher education provider issued a €1bn loan. We decided not to participate. Our research uncovered several
serious concerns, including serious complaints from former students on the quality of service and value of credentials provided,and removal of some institutions from eligibility for government student loan programmes in key markets. There has also been ahigh level of personnel turnover in key financial roles and the company would not commit to providing audited financials for fiscal
year 2020. The highly acquisitive nature of the business also made like-for-like comparisons difficult over time given poor
disclosures.
Separately, we have long invested in a European nursing home provider. Upon the outbreak of the COVID-19 pandemic, we held
one-to-one meetings with management. We believed the disclosure of COVID-19-related information to assess their handling of thepandemic was insufficient. As a result, we sold our holding and moved our exposure to a close peer within the sector with excellent
disclosure of their COVID-19 policies and mortality/infection figures, so that we could have greater confidence in their performance
during the ongoing health crisis. As a result, we are now invested in a company providing detailed plans and figures for theirvaccination programme while the previous borrower continues to keep this information private.

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CASH
Chris Brown
Head of Money Markets

KEY INSIGHT
	We now monitor and analyse ESG ratings within our cash investment universe. We have also changed
our approach to exclude investments in tobacco and fossil fuels.

Q

How have you applied a responsible investment approach in your portfolios?

Our clients increasingly expect ESG criteria to be incorporated into their investments, and we reflect this in our cash portfolios –both in terms of ensuring material ESG risks are analysed, and to encourage better practice with regard to high-profile ESG issues.
We monitor and analyse ESG ratings and risks within our cash investment universe on a monthly basis. We exclude the worst
performers, and if there are possible investments with similar financial details, we will opt for the better performer in ESG terms.
If an issuer has no ESG rating, we will engage with the company to understand the risks it faces; if the issuer does not engage,
we will consider removing our holding.

Q

What specific investment decisions have you made in 2020 in light of your ESG analysis?

We have changed our approach to exclude investments in tobacco and fossil fuels. We continue to exclude defence. The cash
instruments in which we invest are typically A1/A1+ rated, so ESG risks typically have less material impact relative to lower-rated
fixed income investments. There has been no material impact on our liquidity portfolios’ performance since implementing theseprinciples.

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

39

Matthew Merritt
Head of Multi-Asset Strategy GroupKEY INSIGHT
	We pursued the market development of tradeable derivatives on ESG indices and expanded the range
of instruments with specific ESG criteria in our flagship multi-asset strategy.

Q

How have you applied a responsible investment approach in your portfolios?

Our flagship multi-asset approach, Insight’s broad opportunities strategy, seeks to generate long-term capital growth throughdynamic allocation across a variety of asset classes. The strategy adopts a global macro approach and uses derivatives, market
index-based securities, listed closed-end investment companies (direct holdings) and pooled funds to gain the team’s desired
exposure to each of the underlying asset classes.
A responsible investment approach is integrated across all aspects of our investment process, and our strategy is aligned with eachof the six PRI principles. Figure 13 highlights how we aim to take a responsible investment approach when making investment
decisions and fulfil our stewardship role in the case of direct investments.
Figure 13: How Insight's flagship multi-asset strategy seeks to embed the six PRI principles

Principle

2

Principle

Principle

Principle

Principle

We will incorporate ESG issues into investment analysis and decision-making processes
1

Principle

RESPONSIBLE INVESTMENT IN PRACTICE

MULTI-ASSET• Actively seek ESG screened instruments for market exposures which we believe can deliver superior returns• Evaluate ESG issues when assessing direct investments• Investments in Insight pooled funds have embedded ESG considerations

We will be active owners and incorporate ESG issues into our ownership policies and practices• Vote on all direct holdings• Actively engage with all direct holdings, pursuing a responsible investment agenda

We will seek appropriate disclosure on ESG issues by the entities in which we invest
3• Proprietary ESG questionnaire developed for direct holdings (infrastructure investments)• Identiﬁes potential areas for engagement• Feeds through to Insight’s ESG ratings reﬂected in our transparency reporting

We will promote acceptance and implementation of the Principles within the investment industry
4• Actively support development of ESG screened index instruments through early adoption, thereby encouraging broader
take-up across industry. Active engagement with providers on issues such as exclusion criteria• Engagement with direct holdings pursuing responsible investment agenda beneﬁts all holders and encourages best practice

We will work together to enhance our effectiveness in implementing the Principles
5• Leverage Insight’s full range of responsible investment analysis and resources• Engage with other areas of the business in areas such as design of responsible investment questionnaires within research
process and determining / overseeing Insight’s voting policy

We will each report on our activities and progress towards implementing the Principles
640• Provide transparent reporting of portfolio using Insight’ proprietary ESG ratings of underlying exposures, as well as climatechange factors• Reports on voting and engagement can be provided

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Asset classes accessed in the strategy offer different ways to adopt a responsible investment approach.
• We use derivative instruments extensively, and we have long been proponents of developing these markets to support
responsible investors. Following an extensive review of recently launched instruments, we started to use ESG-screened equity
derivatives early in 2020 (see below for more information).
• In fixed income, to access certain exposures our strategy can invest in Insight-managed pooled vehicles. For such capabilities,
ESG considerations have long been a fundamental part of our corporate and sovereign research and engagement processes.
• The strategy’s direct holdings in listed closed-end infrastructure companies provide a different scope for engagement thanmarket-based exposures. In 2020 we collaborated with an external entity to develop a proprietary ESG questionnaire for our
strategy’s infrastructure holdings. The questionnaire helps to assess ESG credentials across different sectors and to identify
areas for future engagement.
As active owners of our direct holdings we exercise our stewardship role through regular engagement with investee management
and company boards to discuss a range of relevant issues including governance, strategy and implementation of a responsible
investment approach. In 2020, we had 36 engagements including 13 with company boards and 14 where ESG factors were a topic
of discussion. Over the same period, we voted on 151 proposals across 12 companies.
We are committed to providing transparency on ESG outcomes in our strategy and now provide detailed ESG metrics to our clients.
We offer a summary in Table 3.
Table 3: ESG ratings for Insight's flagship multi-asset strategy22
ESG rating23

Environmental rating23

Social rating23

Governance rating24

Carbon intensity24

Portfolio

2.8

2.5

2.9

3.2

184.3

Cash

2.8

2.5

2.9

3.2

191.0

Fixed income

1.7

2.3

1.8

2.0

N/A

Equities

2.9

2.5

2.8

3.4

315.1

Real assets25

3.3

2.8

3.3

3.8

160.8

Total return strategies

2.7

3.1

3.1

2.1

1.2

Q

What specific investment decisions have you made in 2020 in light of your ESG analysis?

ESG-screened exposures
Recent developments in ESG-screened exchange-traded derivatives and funds have provided opportunities for us to encourage
their use within the wider industry.
Following extensive reviews of recently launched instruments, we started to incorporate ESG-screened equity derivatives in thestrategy in early 2020 including futures on the S&P 500 ESG index, and as they became available, the EuroStoxx 50 ESG Index and
MSCI Emerging Market ESG Screened Index. Our commitment to encourage the development and adoption of ESG screened
exposures has meant that our strategy, as at 2020 year-end, accounts for a meaningful proportion of aggregate open interest inthese relatively newly available derivatives.
We also introduced ESG-screened exposures in other parts of the portfolio including US and European investment grade credit,
US and European high yield and emerging market debt.
The strategy’s ESG-screened holdings exclude exposures to certain industries while maintaining broadly similar characteristics tothe parent asset classes. Excluded exposures are generally replaced by companies with a higher ESG scores in the same sector.

As at 31 December 2020. ESG ratings range from 1 (best possible) to 5 (worst possible). Notes: 23 ESG ratings reflect Insight’s
assessment of corporate and sovereign issuers, or where appropriate, pooled funds. Cash rating relates to Insight’s GBP liquidity
strategy. Real assets rating excludes commodities. 24 Carbon intensity calculations take each underlying corporate issuer’s (orwhere appropriate pooled fund) total Scope 1 and Scope 2 emissions, which are then normalised by revenue (US$). Data sourced
from a third-party provider without modifications. Cash, government bonds, currencies and commodities are not assigned a carbon
intensity score and are excluded from calculations. Carbon intensity scores do not contribute to overall ESG ratings. 25 Real assets
ESG ratings taken as at 30 June 2020. Data is given for a representative portfolio which adheres to the same investment approachas Insight’s broad opportunities strategy.
22

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

41

RESPONSIBLE INVESTMENT IN PRACTICE

Our commitment to foster development and early adoption of ESG screened exposures provided us with engagement
opportunities with providers on issues such as exclusion criteria. In Q2 2020, we participated in a consultation which contributed tothe exclusion of companies that derive more than 5% revenue from thermal coal in the S&P 500 ESG index. This change came into
effect from Q3 2020.
Climate change
Long-term public and political commitments in most major economies towards creating a cleaner, more secure and sustainableenergy mix has contributed to growth in renewable sources of energy, and in turn has resulted in attractive investment
opportunities within renewable energy.
Renewable energy exposures we hold provide an important source of potential returns. An increasing focus on renewable energy
by global policymakers, including in the US, should incrementally benefit other portfolio holdings which capture such opportunities
in other regions.
The importance of renewable energy has increased over time and our strategy’s target exposure, as a proportion of overall
infrastructure exposure, has increased over time, up from 11% at the end of 2015 to 28% in 2019 and 33% in 2020.
Pandemic impact
Over the year, a focus of our engagement in portfolio holdings has been assessing the impact of the pandemic on expected returns.
The discussions have covered a range of issues including continuity of services to public sector counterparts, availability of facilities
and assurance of cashflows, impact of lower power price forecasts on expected cash flows and overall impact on demand-based
assets due to the restriction of movement of people and goods. We remain comfortable that in the majority of portfolio exposures,
drivers to expected returns remain broadly unchanged.

42

PUTTING PRINCIPLES INTO PRACTICE:RESPONSIBLERESPONSIBLEINVESTMENT:INVESTMENTANNUAL
ANNUALREPORTREPORT2021
2021

BACK TO TABLE OF CONTENTS

SPECIALIST EQUITIESAndy Cawker
Head of Specialist Equities

KEY INSIGHT
	We use our proprietary ESG ratings to help us identify good-quality franchises, with solid management
teams running their operations in the right way.

Q

How do you integrate responsible investment into your investment process?

We have continued to reflect all material risks, including ESG risks, within our equity portfolios. This is a fundamental part of ourstock-picking process: we use our proprietary ESG ratings to help us identify good-quality franchises, with solid management teams
running their operations in the right way.
Through our qualitative research, we have sought to reflect material ESG factors within our portfolios, and we believe ourquantitative data demonstrates this. In 2020, around 80% of the capital invested in our equity income portfolios received a rating of
1 to 3.
The results from our ESG models are continually monitored to see if any company's rating starts to deteriorate. If we observe apoor rating, we will research further and engage if necessary before we decide whether to adjust our allocation. However, we
would note that a bad ESG rating does not necessarily reflect a material risk.

Q

What are good examples of engagements in 2020 in light of your ESG analysis?

To support our analysis we regularly engage with companies on ESG risks and issues.
For example, a European chemicals company in which we held a long position was flagged after an incident in which it appeared thecompany was responsible for pollution near one of its chemical plants. We were concerned that this posed an underappreciated risk
to the equity of the company, in terms of an under-accrued financial liability and possible reputational damage. We discussed thematter with management but we believed it was possible that regulatory agencies might blame the company for the incident, and so
we sold the position.
A positive example of ESG factors playing a clear role in our investment process is our long position in a packaging and paper
company. We expect the shift away from plastic towards paper packaging, which is more environmentally friendly, will favour thecompany relative to some of its peers.
For details on Insight's shareholder voting in 2020, please see page 63.

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

43

IMPACT ANDSUSTAINABILITY• Investors are increasingly seeking to make a positive
impact with their portfolios, either through impact bondsor through other means, including proactive engagement• The supply of impact bonds has boomed to over $1
trillion, with bonds to support the COVID-19 response anotable proportion of 2020 issuance – though 'impact
washing' remains prevalent• Insight has introduced Responsible Horizons, a new rangeof strategies to help investors achieve sustainability
objectives while pursuing a financial return

ENVIRONMENTAL OR SOCIAL IMPACT CAN BE ACHIEVED THROUGH LABELLED IMPACT BONDS, THE
IDENTIFICATION OF SUSTAINABLE ISSUERS, AND CORPORATE ENGAGEMENT. THE GROWTH OF THE
IMPACT BOND MARKET HAS DRAWN THE ATTENTION OF INVESTORS SEEKING A POSITIVE IMPACT.

Once seen as a niche, seed-stage asset class, impact bonds have matured to an undeniably viable addition to portfolios in their own
right. Issuance surged in 2020, driven in part by the need to finance efforts in response to the COVID-19 pandemic. We believe thisincrease could easily be repeated in 2021, taking the overall market close to $2trn by the end of the year.

A record

Added to Insight client portfolios in 2020

US$500bn >US$2bn

in impact bond issuance was added
to the market in 2020, up from the

US$313bn 159

impactbondsof impact
bonds

116

issuers’
impactbonds

187

client accounts at Insighthave exposure to
impact bonds27

issued in 201926

OPPORTUNITY IN IMPACT
The surge in impact bond issuance was driven by investor demand, leading governments and corporates alike to deliver on thepremise of impactful investing. Fixed income investors might consider the extent to which they are acting to influence the structure of
new issuance: corporates can be receptive to direct engagement and feedback, as we illustrate in this report (see page 26 onwards).
Also, for asset owners such as pension funds, the nature of fixed income investing requires the long-term management ofsustainability issues. This creates a significant opportunity to incorporate impact objectives within fixed income mandates.

THE SOCIAL CLUBGreen bonds continue to dominate impact bond issuance at 53% in 2020. However, the rise of social bonds was striking, marking analmost nine-fold increase to $161bn in issuance (from $18bn in 2019), propelled by the global response to COVID-19 (see Figure 14).
Figure 14: Social bond issuance surged in 202028
600

Billion (US$)

IMPACT AND SUSTAINABILITY

FOR INVESTORS SEEKINGA POSITIVE IMPACT

400

200

0
2015

 Green bond/loan
26

2016

 Sustainability bond/loan

2017

2018

2019

2020

 Social bond/loan

Source Bloomberg. 27 As at 31 December 2020. 28 Bloomberg, as at 31 December 2020.

46

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTSIn March 2020, the ICMA highlighted the relevance of social bonds in addressing the coronavirus pandemic and provided additional
guidance for eligible social projects, which now include coronavirus-related health care and medical research, vaccine
development, and medical equipment investments.
The increased scope of eligible projects is likely to encourage issuers to become more active in the space. The diversification ofissuers is likely to evolve in a similar manner to the green bond market, with supranationals leading in the market’s early years andother investor types following as more issuers look to demonstrate support for social issues while delivering investment returns.

NOT ALL IMPACT BONDS ARE CREATED EQUAL
Impact bonds can help the investors align with their non-financial objectives, but rigorous due diligence is vital to avoid the risk of‘greenwashing'.

Approximately 10% of impact bonds evaluated by Insightin 2020 received a ‘red’ rating and 40% a ‘green’ rating
In large parts of the impact bond market there are lower levels of disclosure, which is a significant enabler of ‘impact washing’– an issuer falsely claiming to be impact-focused, with little intention of demonstrating any positive impact achieved. This, in turn,creates challenges around comparability in the issuance of, and reporting on, so-called impact bonds.
While there are some commonly used frameworks and standards, such as the International Capital Market Association’s (ICMA)
Green Bond Principles, these are not a prerequisite for issuance – and only cover a portion of the universe. Likewise, a lack ofconsistent reporting renders it difficult for investors to identify whether bond proceeds are used as initially marketed or are simply
impact in name only.

HELP FOR INVESTORS: IMPACT BOND ASSESSMENTS
To manage sustainability objectives for our clients, Insight analyses impact bonds using our proprietary framework (see Figure 15).
We have found some misalignment in how these instruments are defined, posing issues of integrity in measuring objectives forinvestors. As the universe expands, these issues are likely to only be further compounded.
Out of the 285 impact bonds we have rated since 2017, it has been disappointing to see that only 34% have met all our
requirements to receive a green rating under our impact bond assessment framework. Conversely, 16% received a red rating
meaning they did not pass our minimum criteria, with the remaining 50% rated amber, indicating there are some weaknesses
in their approach.29
The new EU green bond standards and the EU taxonomy should introduce more market standardisation and give access to more
complete information that will be relevant to investors. For issuers, alignment with the ICMA Green Bonds Principles, along withexternal verification, will prevent them from giving any unintentional impression of impact washing.
Until more formal frameworks are enforced, it will be vital for investors to exercise appropriate due diligence to avoid falling victim
to the rising risk of impact washing.
Figure 15: Insight's impact bond evaluation process29

ESG performance

Analysts consider ESG performance of the issuer.
Companies with an inadequate performance will not be
eligible for Investment in our portfolios.

Fail

Indicates the impact bond does notmeet Insight’s minimum requirements

Bond framework

Analysts consider the strengths of the bond framework.
The framework provides guidance for how the company
will use bond proceeds.

PartialIndicates there are weaknesses
in the impact bond

Bond impact

Analysts consider the positive impact of bond. This is aqualitative and quantitative assessment.

Pass

Indicates company impact bondmeets Insight’s requirements

As at 31 December 2020.

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

47

IMPACT AND SUSTAINABILITY

Figure 16: Examples of Insight Investment’s impact bond analysis
Bond

ESG

Bond framework

ImpactTraffic

Sectortype

performance met?

criteria met?

criteria met?

light rating

Media

SocialThis education bond has clear criteria for projects that could create a positive social impact and is aligned with the social bond principles. The issuer
could have provided more information on exactly which category the proceeds would be used for and the extent of financing versus refinancing.
However, this is a best-in class issuer and there is a strong process for evaluating eligible projects, justifying a green rating.


Automotive

GreenThe bond’s proceeds may be used for clean transportation (primarily funding electric vehicles and related charging infrastructure). The issuer remains a
UN Global Compact violator and has a worst-in-class ESG rating, and therefore does not meet our criteria to be rated green. However, the framework isclear and in line with the market standard.


FinancialSocialThere is a lack of information on how much of the proceeds will refinance existing debt rather than finance new projects. It is unclear whether theframework has been verified by the ICMA, how often the issuer would provide reporting, and whether they will provide reporting including specified key
performance indicators (KPIs). Compared to other COVID-19 social bond issuances, we believe the framework lacks detail and ambiguity around impact
reporting is not sufficient to measure the overall impact of the bond. On the positive side, how proceeds will be used are more specific compared to otherissues.

Telecommunications

GreenThe bond’s proceeds may be used for renewable energy, energy efficiency and green buildings. The company has committed to providing allocation andimpact reporting and has stated relevant KPIs. A green bond committee comprised of representatives from the company’s treasury, strategy, technology
and sustainability teams will be responsible for selecting and evaluating eligible projects. The company has committed to providing independently verified
allocation and impact reporting. The company has a clear framework and has set business-level targets for carbon emissions, waste management and100% action among employees to be achieved by 2030. There is a clear commitment from the company to implement a sustainable strategy.

Real estateSocialThe bond’s proceeds may be used for accessing essential services through investment in hospital and elderly care real estate in France. We rated thisbond amber. This could have been a green rating as it ticks the boxes in terms of the key pillars of a framework and the company has an opportunity tocreate clear social impact. However, it appears to be refinancing a larger proportion of the proceeds, which in our view is less impactful.

Utilities



Green

The bond’s proceeds can be used for general corporate purposes, including loan funding. The allocation of proceeds will be reported annually withattestation from an external third-party verifier, but there is no information on whether there would be any impact reporting. Various departments will be
involved in selecting relevant projects to receive funding, but there is no information on this process nor for management of the proceeds. Given thesefacts we rated the bond red.

48

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTS

30%
Financial

33%
Government

17%

2%

an
rm
Ge

Belgium 1%
Japan 1%%Finland 1
2%

tria

ile

Ch

2%

%

en

s2

nd

Isla

ed

Sw

bourg

an

Aus

ym

Ca

Luxem

y1
9%

7%

Utilities

5%

Industrial

4%

Consumer
cyclicalConsumernon-cyclical2%

Communications

1%

Technology

1%
Basic
material

Impact bonds bought by Insight in 2020, weighted by value

4%
Italy

4%

US 6%

Impact bondsbought by Insight in2020 spanned global
opportunities

UK 6%

in
pa

France 14%

7%

S

Ne
EU

8%

th

er

la

nd

s1

Ireland 10%

1%

For full details of impact bonds bought across Insight portfolios in 2020, see page 55.
PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

49

IMPACT AND SUSTAINABILITYRESPONSIBLE HORIZONS:A NEW RANGE FOR INVESTORSSEEKING A RESPONSIBLE APPROACH
MANY INVESTORS ARE LOOKING TO ACHIEVE A POSITIVE ENVIRONMENTAL OR SOCIAL IMPACT, AND
TO INVEST IN SUSTAINABLE BUSINESSES THAT WILL STAND THE TEST OF TIME. FOR THIS REASON, WE
HAVE CREATED A CLEAR SET OF QUALIFICATION CRITERIA FOR INSIGHT STRATEGIES WHICH HAVE BEEN
SPECIFICALLY DESIGNED FOR INVESTORS SEEKING RESPONSIBLE INVESTMENT OUTCOMES.
To qualify as a Responsible Horizons strategy, each investment portfolio will reflect the following blend of responsible
investment criteria:• Emphasise the best and avoid the worst performers on ESG issues, based on research powered by Insight Prime• Reflect long-term themes, such as climate change and social inequality• Avoid investments with a negative impact, including tobacco producers• Apply a higher hurdle for environmentally sensitive industries, like energy companies• Provide transparency on the application of Insight proprietary ratings and key ESG performance indicators throughcustomised reporting
In addition to these criteria, specific strategies may also reflect additional guidelines which we believe reflect best practice in
responsible investment for the investment category and financial and non-financial outcomes targeted in each case. We also
support a range of segregated responsible investment solutions that reflect individually customised responsible investment
objectives.
We expect Responsible Horizons strategies to reflect best practice in responsible investment and as a firm we continuously develop
data quality, research and engagement and the range of solutions for clients. We are committed to continuous improvement,
innovation, and collaboration with asset owners and the asset management industry to ensure the most effective approach toinvestment and sustainability.

50

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTS

Underpinned by Insight’s precise and evidence-based
approach, Responsible Horizons emphasises both indepth investment research and active engagement
to understand risks and improve behaviour.

ROBERT SAWBRIDGEHEAD OF RESPONSIBLE INVESTMENT SOLUTIONSPUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

51

IMPACT AND SUSTAINABILITY

INSIGHT:A RESPONSIBLE PARTNER
AT INSIGHT, THERE ARE THREE KEY PILLARS TO OUR CORPORATE RESPONSIBILITIES:Our markets: we seek to protect client interests and operate our business with integrity
and resilience
Our people: we seek to encourage effective leadership, well-being, diversity and inclusion
for our staff
Our world: we seek to invest and act responsibly to protect the wider world and, locally,
to support the community, including through the sponsorship of the arts and sciences
and charitable partnerships
This means ensuring that Insight is doing the right thing for our clients, our colleagues and theenvironment.
For more detail on our CSR initiatives, please visit our web page at https://www.insightinvestment.com

FOCUS: DIVERSITY AND INCLUSIONAt Insight, we recognise the importance of diversity and inclusion. We believe the success of our business has been built upon theprinciples of inclusion, equal opportunity and meritocracy. We know that diverse teams make more balanced and informed
decisions and that the answers to some of our challenges can come from anyone in our business.

Involvement in the Diversity Project
We have in place a number of initiatives seeking to promote greater diversity and inclusion. The Diversity Project is a crosscompany initiative championing a more inclusive culture within our industry30. The Project aims to achieve the vision through aconcerted, collaborative and cohesive action plan. It aims to share best practice, and where there are gaps, establish new practices
to help create a more diverse industry at all levels from intake to senior leadership and the board.
Insight has representatives on the Advisory Council and Steering Committee of the Project. We are engaged in various areas
including workstreams focusing on ethnicity, supporting those early in their career, and LGBT+ inclusion. An example of an initiative
Insight is involved with is a collaboration with the upReach mentoring programme, which focuses on mentoring university students
from disadvantaged backgrounds to enable their entry into the investment industry.31

A 10-year goal for our diversity profile
In 2020, we set out a new goal for our business: In 10 years, we hope the demographics of the regions in which we operate is
mirrored in our respective local workforce. We plan to be transparent about our progress and share regular updates as we work
towards achieving our diversity goals.

30

https://diversityproject.com/. 31 More information on upReach is available at www.upreach.org.uk.

52

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTS

A new Diversity and Inclusion Committee
However, we know there is still much more work to do in order to create an environment in which everyone can flourish anddevelop at Insight. We have therefore introduced a new Diversity and Inclusion Committee. This Committee reports directly to
Insight’s Executive Management Committee, and has a broad mandate to ensure that, over time, the diversity of the Insight teamreflects more closely the diversity of the societies in which we operate and that our culture continues to allow all colleagues tocontribute to their full potential.

INSIGHT’S NEW DIVERSITY AND INCLUSION COMMITTEE
Chair: Danielle Pagano
COO of Insight North America
Abdallah Nauphal
CEO

Lynne Dalgarno
Head of Human Resources

Meaghan Campbell
Senior Product Manager

Francesca Fornasari
Head of Currency Solutions

Jalpa Chandarana
Head of Resourcing

Jeff Jones
Head of Talent

John Cooper
Head of Manchester Technology Hub

Andre Parris
Senior Business Analyst

Jo Daniels
Finance Manager

Nivine Radi
Head of Business Development, BNYM IM
EMEA partnership

We believe the success of ourbusiness has been built upon
the principles of inclusion, equal
opportunity and meritocracy

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

53

APPENDIX I. LEADING OUR RESPONSIBLE
INVESTMENT PROGRAMME
IN 2020 WE ENHANCED OUR OVERSIGHT AND STRUCTURE ON ESG ISSUES. THE INSIGHT RESPONSIBILITYOVERSIGHT COMMITTEE (IROC), CHAIRED BY INSIGHT'S CEO ABDALLAH NAUPHAL, OVERSEES A RANGEOF GROUPS FOCUSED ON DIFFERENT ASPECTS OF OUR COMMITMENT TO RESPONSIBLE INVESTMENT ON
BEHALF OF OUR CLIENTS.
Our responsible investment governance groups include representation from investment, client, commercial, operations, product,
legal, risk and marketing divisions. Joshua Kendall, Head of Responsible Investment Research and Stewardship, has responsibility
along with our Corporate Risk Team for managing the scope, procedures and documentation for each group, which is described infull within the terms of reference documentation reviewed and approved by IROC.
Figure 17: An overview of Insight's responsible investment governance arrangements

EXECUTIVE MANAGEMENT COMMITTEEINSIGHT RESPONSIBILITYOVERSIGHT GROUP32

DIVERSITY AND INCLUSIONCOMMITTEE

Chair: Abdallah Nauphal,
CEO

Chair: Danielle Pagano,
COO of Insight North America

COMMERCIAL
DEVELOPMENTINVESTMENTCOMMUNICATIONS / CORPORATESOCIAL RESPONSIBILITY

Chair: Andrew Stephens,
Head of Distribution,
EMEA

Chair: Lucy Speake,
Head of European Credit and
Deputy Head of Fixed Income

Chair: David Chellew,
Head of Marketing

WORKING GROUPSSOVEREIGN DEBTCORPORATE DEBTNORTH AMERICA

Chair: Colm McDonagh,
CEO, Europe

Chair: Rob Sawbridge,
Head of Responsible
Investment Solutions

Chair: Mark Stancombe,
CEO, North America

32
The Insight Responsibility Oversight Committee (IROC), chaired by Abdallah Nauphal, CEO, includes representatives from our
Executive Management Committee in addition to members of the Investment, Commercial, Communications and CSR groups
reporting to IROC. Membership of IROC includes: Adrian Grey, Global Chief Investment Officer; Serkan Bektas, Head of Client Solutions
Group; Jonathan Eliot, Chief Risk Officer; Lynne Dalgarno, Head of Human Resources; Jon Eilbeck, Chief Operating Officer; Jane Ivinson,
General Counsel; Angus Woolhouse, Global Head of Distribution; and Mark Stancombe, CEO, North America. These individuals andrepresentatives of their respective divisions participate in committees throughout our responsible investment governance structure.

54

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTSAPPENDIX II. IMPACT BOND PURCHASES 2020
Table 4: Impact bonds added to Insight portfolios in 202033
IssuerAbn Amro Bank Nv

SectorImpact theme

Issue date

Maturity

FinancialGreen

18/04/2018

22/04/2025

Consumer, CyclicalSustainability

05/10/2020

05/10/2028

Aes Corp/The

Utilities

Green

04/12/2020

15/01/2031

Aes Gener Sa

Utilities

Green

07/10/2019

07/10/2079

FinancialGreen

30/09/2020

30/05/2031

Consumer, Non-cyclicalGreen

11/10/2018

11/10/2022

Adidas Ag

Aib Group Plc
Ald SaAlliander Nv

Utilities

Green

10/06/2020

10/06/2030

Alphabet Inc

Communications

Sustainability

05/08/2020

15/08/2050

Anglian Water Serv Fin

Utilities

Green

26/10/2018

26/10/2029

Anglian Water Serv Fin

Utilities

Green

10/08/2017

10/08/2025

Apple Inc

Technology

Green

23/02/2016

23/02/2023

Apple Inc

Technology

Green

15/11/2019

15/11/2031

ArkemaBasic Materials

Green

14/10/2020

14/10/2026

Assicurazioni Generali

FinancialGreen

14/07/2020

14/07/2031

Assura Fin Plc

FinancialSocial

15/09/2020

15/09/2030

Audax Renovables Sa

Utilities

Green

30/11/2020

30/11/2025

Aust & Nz Banking Group

Financial

Sustainability

21/11/2019

21/11/2029

Aust & Nz Banking Group

Financial

Sustainability

21/02/2018

21/02/2023

Avangrid Inc

Utilities

Green

16/05/2019

01/06/2029

Banco Bilbao Vizcaya Arg

FinancialGreen

14/05/2018

14/05/2025

Banco Bilbao Vizcaya Arg

FinancialSocial04/06/2020

04/06/2025

Banco Bilbao Vizcaya Arg

FinancialGreen

15/07/2020

Perpetual

Banco De Sabadell Sa

FinancialGreen

11/09/2020

11/03/2027

Banco Santander Sa

FinancialGreen

04/10/2019

04/10/2026

Bankinter Sa

FinancialGreen

06/02/2020

06/10/2027

Banque Fed Cred MutuelFinancialGreen

08/10/2020

08/10/2027

Basic Materials

Green

05/06/2020

05/06/2027

Belgium Kingdom

Government

Green05/03/2018

22/04/2033

Bloom Energy Corp

IndustrialGreen

11/08/2020

15/08/2025

Bnp Paribas

FinancialGreen

28/02/2019

28/08/2024

Bnp Paribas

FinancialGreen

17/04/2018

17/04/2024

Basf Se

Bpce Sfh – Societe De Fi

FinancialGreen

27/05/2020

27/05/2030

Bundesrepub. Deutschland

Government

Green

09/09/2020

15/08/2030

Caisse D'Amort Dette Soc

Government

Social02/12/2020

25/02/2026

Caixabank Sa

FinancialSocial

10/07/2020

10/07/2026

Caixabank Sa

FinancialGreen

18/11/2020

18/11/2026

Cifi Holdings Group

FinancialGreen

20/07/2020

20/10/2025

33
For illustrative purposes only. The specific securities identified and described are subject to change, for information only.
No assumptions should be made that the securities identified and discussed were or will be profitable.

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

55

Issuer

SectorImpact theme

Issue date

Maturity

Citigroup Inc

FinancialGreen

29/01/2019

29/01/2022

Clarion Funding Plc

FinancialSocial

22/01/2020

22/01/2035

Clarion Funding Plc

Financial

Sustainability

13/11/2020

13/11/2032

Cnp Assurances

FinancialGreen

27/11/2019

27/07/2050

Commerzbank Ag

FinancialGreen

23/09/2020

24/03/2026

Con Edison Co Of Ny Inc

Utilities

Green

31/03/2020

01/04/2050

Con Edison Co Of Ny Inc

Utilities

Green

31/03/2020

01/04/2030

Cpi Property Group Sa

FinancialGreen

22/01/2020

22/01/2028

Cpi Property Group Sa

FinancialGreen

28/10/2019

23/04/2027

Credit Agricole Sa

FinancialSocial09/12/2020

09/12/2027

Credit Mutuel Arkea

FinancialSocial11/06/2020

11/06/2029

Daimler Ag

Consumer, CyclicalGreen

10/09/2020

10/09/2030

Danone Sa

Consumer, Non-cyclicalSocial26/03/2018

26/03/2025

De Volksbank Nv

FinancialGreen

16/09/2019

16/09/2024

De Volksbank Nv

FinancialGreen

22/07/2020

22/10/2030

Deutsche Bank Ag

FinancialGreen

10/06/2020

10/06/2026

Development Bk Of Japan

Financial

Sustainability

15/10/2020

15/10/2024

Dte Electric Co

Utilities

Green

15/02/2019

01/03/2049

E.On Se

Utilities

Green

28/08/2019

28/08/2024

E.On Se

Utilities

Green

20/05/2020

20/08/2031

Electricite De France Sa

Utilities

Green

13/10/2015

13/10/2025

Electricite De France Sa

Utilities

Green

14/09/2020

14/09/2024

Electricite De France Sa

Utilities

Green

13/10/2016

13/10/2026

Energias De Portugal Sa

Utilities

Green

20/01/2020

20/07/2080

Enexis Holding Nv

Utilities

Green

17/06/2020

17/06/2032

Engie Sa

Utilities

Green

27/03/2020

27/03/2028

Engie Sa

Utilities

Green

27/03/2020

30/03/2032

Engie Sa

Utilities

Green

24/10/2019

24/10/2030

Engie Sa

Utilities

Green

27/03/2017

27/03/2024

Engie Sa

Utilities

Green

30/11/2020

Perpetual

Engie Sa

Utilities

Green

21/06/2019

21/06/2027

Esb Finance Dac

Utilities

Green

11/06/2019

11/06/2030

Eurogrid Gmbh

Utilities

Green

15/05/2020

15/05/2032

European Bk Recon & Dev

Government

Green

10/01/2019

10/01/2024

European Investment Bank

Government

Sustainability

15/04/2020

15/05/2028

European Investment Bank

Government

Green

27/08/2015

15/11/2023

European Investment Bank

Government

Green

09/04/2019

14/11/2042

European Investment Bank

Government

Green

29/06/2020

15/11/2035

European Union

Government

Social27/10/2020

04/10/2040

European Union

Government

Social17/11/2020

04/11/2025

European Union

Government

Social17/11/2020

04/11/2050

EnergyGreen

23/09/2020

23/09/2025

Falck Renewables Spa
Fluvius System Op
France (Govt Of)
Fs Luxembourg Sarl
Hannon Armstrong Sustain
Hungary

56

Utilities

Green

02/12/2020

02/12/2030

Government

Green

31/01/2017

25/06/2039

EnergyGreen

15/12/2020

15/12/2025

FinancialGreen

21/08/2020

15/08/2023

Government

Green

05/06/2020

05/06/2035

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTS

Issuer

SectorImpact theme

Issue date

Maturity

Iberdrola Finanzas Sau

Utilities

Green

14/04/2020

16/06/2025

Iberdrola Intl Bv

Utilities

Green

22/11/2017

Perpetual

Iberdrola Intl Bv

Utilities

Green

26/03/2018

Perpetual

Iberdrola Intl Bv

Utilities

Green

12/02/2019

Perpetual

Iberdrola Intl Bv

Utilities

Green

22/11/2017

Perpetual

Icade Sante Sas

FinancialSocial17/09/2020

17/09/2030

Ing Groep Nv

FinancialGreen

15/11/2018

15/11/2030

Intesa Sanpaolo Spa
Irish Tsy
Kfw

FinancialGreen

04/12/2019

04/12/2024

Government

Green

17/10/2018

18/03/2031

FinancialGreen

22/05/2019

05/05/2027

Kingdom Of Sweden

Government

Green

09/09/2020

09/09/2030

Land Nordrhein-Westfalen

Government

Sustainability

12/10/2020

12/10/2035

Leaseplan Corporation Nv

FinancialGreen

09/04/2020

09/04/2025

Leaseplan Corporation Nv

FinancialGreen

07/03/2019

07/03/2024

Basic Materials

Green

25/06/2020

15/07/2025

Mediobanca Di Cred Fin

FinancialGreen

08/09/2020

08/09/2027

Munich Re

FinancialGreen

23/09/2020

26/05/2041

Natl Grid Elect Trans

Utilities

Green

20/01/2020

20/01/2025

Nbm Us Holdings Inc

Consumer, Non-cyclicalSustainability

06/08/2019

06/08/2029

EnergyGreen

02/06/2020

02/06/2025

Netherlands Government

Government

Green

23/05/2019

15/01/2040

Northern States Pwr-Minn

Utilities

Green

15/06/2020

01/06/2051

Nxp Bv/Nxp Fdg/Nxp Usa

Technology

Green

01/05/2020

01/05/2030

Op Corporate Bank Plc

FinancialGreen

26/02/2019

26/02/2024

Livent Corp

Neoen Sas

Pearson Funding Plc

Communications

Social04/06/2020

04/06/2030

Consumer, Non-cyclicalSustainability

27/03/2020

01/04/2030

Raiffeisen Bank Intl

FinancialGreen

25/09/2019

25/09/2026

Red Electrica Fin Sa Uni

Utilities

Green

24/01/2020

24/07/2028

Republic Of Chile

Government

Green

29/01/2020

29/01/2040

Republic Of Chile

Government

Green

02/07/2019

02/07/2031

Republic Of Chile

Government

Green

25/06/2019

25/01/2050

Republic Of Chile

Government

Green27/01/2020

27/01/2032

Republic Of Guatemala

Government

Social24/04/2020

24/04/2032

Royal Bank Of Canada

FinancialGreen

02/05/2019

02/05/2024

Rumo Luxembourg Sarl

IndustrialGreen

10/07/2020

10/01/2028

Russian Rail(Rzd Cap)

Industrial

Social10/12/2020

02/03/2028

Sbb Treasury Oyj

FinancialSocial14/12/2020

14/12/2028

Scottish Hydro Electric

Utilities

Green

27/09/2019

27/09/2035

Severn Trent Water Util

Utilities

Sustainability

02/06/2020

02/06/2040

Shinhan Bank

Financial

Sustainability

23/04/2019

23/04/2029

Societe Generale

FinancialGreen

22/09/2020

22/09/2028

Societe Generale Sfh

FinancialGreen

11/02/2020

11/02/2030

Societe Nationale Sncf

IndustrialGreen

17/04/2020

17/04/2030

Southern Water Services

Utilities

Sustainability

28/05/2020

28/05/2037

Southern Water Services

Utilities

Sustainability

28/05/2020

28/05/2028

Star Energy Co Issue

Utilities

Green

14/10/2020

14/10/2038

Consumer, CyclicalSustainability

13/05/2019

15/08/2049

Pfizer Inc

Starbucks Corp

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

57

Issuer

SectorImpact theme

Issue date

Maturity

Suzano Austria Gmbh

Basic Materials

Green

14/07/2016

14/07/2026

Swisscom FinanceCommunications

Green

14/05/2020

14/11/2028

Telefonica Emisiones Sau

Communications

Green

05/02/2019

05/02/2024

Telefonica Europe Bv

Communications

Green

05/02/2020

Perpetual

Telia Co Ab

Communications

Green

11/02/2020

11/05/2081

Tennet Holding Bv

Utilities

Green

22/07/2020

Perpetual

Tennet Holding Bv

Utilities

Green

30/11/2020

30/11/2032

Tennet Holding Bv

Utilities

Green

30/11/2020

30/11/2040

Tennet Holding Bv

Utilities

Green

05/06/2018

05/06/2028

Tennet Holding Bv

Utilities

Green

04/06/2015

04/06/2027

Terna Spa

Utilities

Green

23/07/2018

23/07/2023

Terna Spa

Utilities

Green

24/07/2020

24/07/2032

Terna Spa

Utilities

Green

10/04/2019

10/04/2026

Transmantaro

Utilities

Green

16/04/2019

16/04/2034

Transmantaro

Utilities

Green

14/09/2020

16/04/2034

Turkiye Sinai Kalkinma B

Financial

Sustainability

28/03/2017

29/03/2027

Financial

Sustainability

08/12/2020

08/01/2026

Government

Social17/06/2020

25/11/2029

Turkiye Vakiflar Bankasi
UnedicUnipol Gruppo Spa

FinancialGreen

23/09/2020

23/09/2030

Usaa Capital Corp

Financial

Sustainability

21/04/2020

01/05/2030

Vf Corp

Consumer, CyclicalGreen

25/02/2020

25/02/2028

Volkswagen Intl Fin Nv

Consumer, CyclicalGreen

23/09/2020

22/09/2028

Volkswagen Intl Fin Nv

Consumer, CyclicalGreen

23/09/2020

23/09/2032

Volvo Car Ab

Consumer, CyclicalGreen

07/10/2020

07/10/2027

Yorkshire Water FinanceUtilities

Sustainability

26/11/2019

26/11/2026

Yorkshire Water FinanceUtilities

Sustainability

18/04/2019

18/04/2041

Yuzhou Group

FinancialGreen

12/08/2020

12/08/2026

Zhenro Properties Group

FinancialGreen

11/09/2020

05/02/2025

Zhenro Properties Group

FinancialGreen

20/11/2020

18/11/2021

58

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTSAPPENDIX III. WEAPONS POLICYINSIGHT DOES NOT INVEST IN COMPANIES INVOLVED WITH THE PRODUCTION, SALE OR MAINTENANCE
OF CLUSTER MUNITIONS OR LANDMINES.

There are two major international conventions that address cluster munitions and landmines specifically:• The Convention on Cluster Munitions (2008): This Convention restricts the manufacture, use, and stockpiling of cluster
munitions and the components of these weapons.
• The Convention on the Prohibition of the Use, Stockpiling, Production and Transfer of Anti-Personnel Mines and on Their
Destruction (1997): This Convention, often referred to as the Anti-Personnel Landmines Convention, aims to eliminate
antipersonnel landmines around the world.
In line with these international conventions and following their ratification into domestic law by a number of countries, Insight has
adopted a global policy which commits it to avoiding direct investments in companies that:• Design, produce, sell or maintain cluster munitions and/or landmines.
• Undertake research and development to develop cluster munitions and/or landmines.
• Breach the requirements of the Convention on Cluster Munitions or the Anti-Personnel Landmines Convention.
This policy:• Applies across all asset classes.
• Excludes affiliated companies: that is, companies with affiliations or commercial relationships with screened companies will not
be excluded from investments.
• Does not apply to passive holdings in index-tracking instruments.

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

59

APPENDIX IV. VOTING POLICYPROXY VOTING IS AN ESSENTIAL PART OF CREATING SHAREHOLDER VALUE, ENSURING GOOD
GOVERNANCE AND DELIVERING INVESTMENT PERFORMANCE TO CLIENTS. INSIGHT SEEKS TO ACTIVELYEXERCISE ITS RIGHTS AND RESPONSIBILITIES IN REGARDS TO PROXY VOTING ON BEHALF OF CLIENTS.
THE INSIGHT VOTING POLICY (“POLICY”) EXPLAINS HOW OUR VOTING ACTIVITIES PROMOTE THE
EFFICIENT AND SUSTAINABLE OPERATION OF INSIGHT HOLDINGS.

POLICY STATEMENT
Insight is committed to voting all proxies where it is deemed appropriate and responsible to do so. Insight takes its responsibility tovote very seriously and votes in the best interest of clients.

SCOPE
This Policy applies to all financial instruments with voting rights which clients and funds hold, that have delegated proxy voting
to Insight.

VOTING POLICYThe Policy is designed around best-practice standards which we believe are essential to delivering long term value to shareholders.

LEADERSHIP
Every company should be led by an effective board• Strategy: Company leadership should define a clear purpose and set long term objectives for delivering value to shareholders.
• Culture: The board should promote a culture which strongly aligns to the values of the company. It should seek to monitor thisculture and regularly engage with its workforce.
• Engagement with Shareholders: The board and senior management should be transparent and engaged with existing
shareholders. The board should have a clear understanding of the views of shareholders. It should seek to minimize unnecessary
dilution of equity and preserve the rights of existing shareholders.
• Sustainability: The board should take account of the risks and opportunities from environmental and social factors when setting
strategy and in their company monitoring role.

STRUCTURE
The board should have a clear division of responsibilities• The Chair: The chair of the board should demonstrate objective judgment and promote transparency and facilitate constructive
debate to promote overall effectiveness.
• The Board: There should be an appropriate balance of executive and non-executive directors. Non-executive directors shouldbe evaluated for independence. No one individual should dominate the board’s decision-making. There should be a clear
division, between the board and the executive leadership of the company.
• Resources: The board should ensure it has sufficient governance policies, influence and resources to function effectively.
Non-executive directors should have sufficient time to fulfil their obligations to the company as directors.

EFFECTIVENESS
The board should seek to build strong institutional knowledge to ensure long-term efficient and sustainable
operations• Appointment: There should be a formal appointment process, which ensures that the most qualified individuals are selected forthe board. This process should be irrespective of bias to ensure appropriate diversity on the board.

60

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTS• Knowledge: The board should be comprised of those with the knowledge, skills and experience to effectively discharge theirduties. The board should have sufficient independence to serve as an effective check on company management and ensure thebest outcomes for shareholders.
• Evaluation: The board should be evaluated for effectiveness on a regular basis. Board members’ contributions should beconsidered individually.

INDEPENDENCE
The board should present a fair and balanced view of the company’s position and prospects• Integrity: The board should ensure that all reports it produces accurately reflect the financial position, prospects and risks
relevant to the company. The board should ensure the independence and effectiveness of internal and external audit functions.
• Audit: The board should ensure that clear, uncontentious accounts are produced. These should conform to the relevant bestaccountancy practices and accurately represent the financial position of the company. Deviations from standard accounting
practices should be clearly documented with a corresponding rationale.
• Risk: The board should ensure the company has sound risk management and internal control systems. There should be a regularassessment and communication of the company’s emerging and principal risks.

REMUNERATION
Levels of remuneration should be sufficient to attract, retain and motivate talent of the quality required to run
the company successfully• Goal Based: The board should base remuneration on goals-based, qualitative, discretionary cash incentives. Remuneration
should consider underlying industry and macroeconomic conditions and not be structured in a tax-oriented manner.
• Transparent: Remuneration arrangements should be transparent and should avoid complexity.
• Sustainable: Remuneration should not be excessively share based and should be accurately represented and controlled as an
operational cost. Remuneration of executives should promote a long-term focus and respect the interests of existing
shareholders.

ENGAGEMENT
Voting is a component of Insight’s engagement strategy. Insight seeks to vote on all holdings with associated voting rights in one ofthree ways; in support of, against, or in abstention. Insight monitors, evaluates and may support other shareholder campaigns andhas the ability to promote its own resolution.
Where Insight has a significant holding and intends to vote against company management, it will generally seek to open a dialogue
with management about its voting intention. Insight hopes that this collaboration can enhance the value of assets for the beneficial
owners.

VOTING AGENT
Insight provides detailed voting guidelines to Minerva, a third-party proxy voting servicer. Minerva monitors company meeting
agendas and items to be voted on. Minerva reviews each vote against Insight’s specific criteria and provides a recommendation foreach item.
Insight votes in line with the recommendations of the proxy voting agent and documents where it makes a voting decision against
the recommendation. The rationale for , abstaining or voting against the voting recommendation is retained on the Minerva
platform on a case-by-case basis.
Minerva identifies contentious issues that represent a significant monetary or strategic decision. Where there is no conflict
identified, these proxies are voted by the Portfolio manager as an investment decision.
Where Insight has a significant holding and the proxy agent does not make a voting suggestion, the vote will undergo a conflict
check. When a conflict or potential conflict is identified, the vote will be escalated to the Proxy Voting Group.
Voting decisions are communicated to Minerva. These votes are submitted to shareholder meetings through a specific proxy.
Minerva provides reports on voting activity to Insight quarterly. Voting data is available to clients upon request. Insight’s voting
record is posted annually on its website.

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

61

CONFLICTS OF INTEREST
Insight votes in the best interest of clients without undue influence from any other consideration. There is a potential for conflicts ofinterest to arise when Insight invests in firms which are its clients or potential clients. There is also potential for conflict between
investment teams with fixed income holdings in publicly listed firms. In situations where there is a conflict of interest or perceived
conflict of interest, the issue will be raised to the Proxy Voting Group. All conflicts are handled in line with the Insight Conflicts ofInterest Policy.

PROXY VOTING GROUP
The Proxy Voting Group (‘PVG’) or (the ‘Group’) is responsible for overseeing the implementation of voting decisions where Insighthas voting authority on a security on behalf of clients.
The PVG is responsible for an annual review of the voting policy and guidelines. Any voting decision not resolved by the PVG will beescalated to the Investment Management Group (IMG). The PVG also reviews contentious votes which have been escalated byinvestment desks. The PVG is appointed by, is accountable to and provides biannual updates to the IMG.

DISCLOSURE
In certain foreign jurisdictions, the voting of proxies can result in additional restrictions that have an economic impact to thesecurity, such as ‘share-blocking’. If Insight votes on the proxy, share-blocking may prevent it from selling the shares of the security
for a period of time. In determining whether to vote proxies subject to such restrictions, Insight, in consultation with the Proxy
Voting Group, considers whether the vote, either in itself or together with the votes of other shareholders is expected to affect thevalue of the security that outweighs the cost of voting. If Insight votes on a proxy and during the ‘share-blocking period’ it would liketo sell the affected security, then in consultation with the Proxy Voting Group it will attempt to recall the shares (as allowable within
the market time-frame and practices).

62

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

BACK TO TABLE OF CONTENTSAPPENDIX V. SHAREHOLDER VOTES IN 2020
Table 5: Specialist equities and multi-asset strategies – voting on management resolutions in 2020
Category

Abstain

Against

For

Total

Auditor – Election

80

80

Auditor – Remuneration

76

76

Board Size and Structure1

1

Bonds and Debt

3

3

Capital Structure22Change of Name

1

1

Directors – Discharge

3

3

696

696

48

48

1

3

General Meeting Procedures

56

56

Human Rights and Workforce

1

1

223

223

1

1

Directors – Elect
Dividends
Environmental Practices

2

Issue of Shares and Pre-emption Rights
Meeting Formalities
Other A&R related

1

1

21

23

Political Activity

47

47

Remuneration – Non-executive

3

3

12

13

1

1

Other Articles of Association

Remuneration – Policy (All-employee Share Plans)

2

1

Remuneration – Policy (Contracts)
Remuneration – Policy (Long-term Incentives)

23

8

31

Remuneration – Policy (Overall)

35

1

5

41

Remuneration – Report

62

1

13

76

Report and Accounts

78

78

Share Buybacks and Return of Capital

83

83

Sustainability Reporting

1

1

Takeover Governance

1

1

10

13

1

1

1477

1607

Transactions – Significant

3

Treasury Shares
Total

126

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

463

IMPORTANT INFORMATIONRISK DISCLOSURES
Past performance is not indicative of future results. Investment in any strategy involves a risk of loss which may partly be
due to exchange rate fluctuations.

ASSOCIATED INVESTMENT RISKS
Fixed income, liability-driven investment and multi-asset
Where the portfolio holds over 35% of its net asset value in securities of one governmental issuer, the value of the portfolio may be
profoundly affected if one or more of these issuers fails to meet its obligations or suffers a ratings downgrade.
A credit default swap (CDS) provides a measure of protection against defaults of debt issuers but there is no assurance their use will
be effective or will have the desired result.
The issuer of a debt security may not pay income or repay capital to the bondholder when due.
Derivatives may be used to generate returns as well as to reduce costs and/or the overall risk of the portfolio. Using derivatives caninvolve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large
movement in the price of the derivative investment.
Investments in emerging markets can be less liquid and riskier than more developed markets and difficulties in accounting, dealing,
settlement and custody may arise.
Investments in bonds are affected by interest rates and inflation trends which may affect the value of the portfolio.
Where high yield instruments are held, their low credit rating indicates a greater risk of default, which would affect the value ofthe portfolio.
The investment manager may invest in instruments which can be difficult to sell when markets are stressed.

CONTRIBUTORS
Joshua Kendall,Head of Responsible Investment
Research and Stewardship,
Insight Investment

Robert Sawbridge,
Head of Responsible Investment
Solutions,Insight Investment

Tudor Thomas,
ESG Quantitative Researcher,
Insight Investment

Nimisha Sodha,
ESG Analyst,
Insight Investment

Phil Craig,
Team Leader, Investment Content,
Insight Investment

64

PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

＜重要な情報＞•

本資料はインサイト社およびその運用戦略の紹介を目的として、
インサイト社が作成した資料をＢＮＹメロン・インベストメント・マネジメント･ジャパン株式会
社がとりまとめた資料です。

•

本資料に掲載されている情報は信頼できると判断した資料に基づいておりますが、その情報の正確性、完全性、および将来の市況の変動等を保証するものではありません。

•

本資料に記載された内容は本資料作成時点でのものであり、今後予告なく変更することがございます。

•

本文中に紹介している運用戦略は、
値動きのある有価証券などに投資し、また為替リスクもありますので、元本及び利息の保証はありません。

•

本資料に記載の運用実績に関するグラフ、図表、
数値その他いかなる内容も過去のものであり、将来の運用成果を示唆あるいは保証するものではありません。

•

本資料に記載された個別銘柄の取引を推奨するものではありません。

•

ファンドに生じた損益は、すべて受益者の皆様に帰属します。

＜投資信託に係るリスクについて＞
投資信託は一般的に、株式、債券等様々な有価証券へ投資します。
有価証券は市場環境、有価証券の発行会社の業績、金利の変動等により価格が変動するため、投資信託の基準価額も変動し、損失を被ることがあります。
また、外貨建の資産に投資する場合には、為替の変動により損失を被ることがあります。
そのため、投資信託は元本が保証されているものではありません。
又、投資信託は、
個別の投資信託毎に投資対象資産の種類や投資制限、取引市場、投資対象国等が異なることから、リスクの内容や性質が異なりますので、ご投資に当たっては各投資信託の投資信託説明書（交付目論見書）をご覧ください。
＜投資信託に係る重要な事項について＞•

投資信託によっては、海外の証券取引所の休業日等に、取得、換金の申し込みの受付を行わない場合があります。

•

投資信託によっては、クローズド期間として、原則として換金が行えない期間が設けられていることや、1回の解約金額に制限が設けられている場合が
あります。

•

分配金の額は、投資信託の運用状況等により委託会社が決定するものであり、将来分配金の額が減額されることや、分配金が支払われないことがあります。

＜投資信託に係る費用について＞
投資信託では、一般的に以下のような手数料がかかります。
手数料率はファンドによって異なり、下記以外の手数料がかかること、
または、
一部の手数料がかからない場合もあるため、詳細は各ファンドの販売会社へお問い合わせいただくか、
各ファンドの投資信託説明書（交付目論見書）
等をご覧ください。
■申込時に直接ご負担いただく費用・・・・・・・・・申込手数料 上限3.85%（税抜3.5%）■換金時に直接ご負担いただく費用・・・・・・・・・信託財産留保額 上限0.70%■投資信託の保有期間中に間接的にご負担いただく費用・・・信託報酬 上限 年率2.035%（税抜1.85%）■その他費用・・・・・・・・・・・上記以外に保有期間等に応じてご負担いただく費用があります。
※

上記費用の総額につきましては、投資家の皆様がファンドを保有される期間等に応じて異なりますので、表示することができません。

※

上記に記載しているリスクや費用項目につきましては、
一般的な投資信託を想定しております。
費用の料率につきましては、
ＢＮＹメロン・インベストメント・マ
ネジメント・ジャパン株式会社が運用するすべての投資信託のうち、徴収する夫々の費用における最高の料率を記載しております。
投資信託に係るリスクや費用は、夫々の投資信託により異なりますので、ご投資をされる際には、事前に良く投資信託説明書（交付目論見書）
や契約締結前
交付書面をご覧下さい。

BNYメロン・インベストメント・マネジメント・ジャパン株式会社
金融商品取引業者：関東財務局長
（金商）
第406号
〔加入協会〕一般社団法人 投資信託協会
  一般社団法人 日本投資顧問業協会
   一般社団法人 第二種金融商品取引業協会

15367-09-21
PUTTING PRINCIPLES INTO PRACTICE: RESPONSIBLE INVESTMENT ANNUAL REPORT 2021

65