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What is ESG/responsible investment?

Local markets define ESG and responsible investment differently. At Insight, ESG refers to environment, social and governance issues that potentially impact the financial performance of corporate issuers. Responsible investment applies more broadly to policy, strategy and process in applying non-financial criteria to investment activities.

Why does Insight consider ESG factors within its credit process?

We regard ESG factors as a component of the overall business risk facing the companies in which we invest. Insight's approach to integrating ESG considerations into the investment decision making process is to consider the financial materiality of the risks in relation to the risk / reward profile. As the value of investments is linked directly to the probability of a future default, the downside risks associated with a company's activities are of particular concern to a fixed income investor. The valuation of fixed income securities rests on the ability of an issuer to meet its contractual obligations, and so the estimation of default risk lies at the heart of our company analysis. An examination of whether a company's governance practices and management systems are adequate to identify and control these threats to a company's financial strength is an essential part of an enhanced investment analysis, and credit risk is therefore the prism through which we must consider ESG issues.

Are you a UNPRI signatory?

Yes, Insight Investment was a founding signatory to the PRI initiative in 2006. We are also supporters or members of other industry groups such as IIGCC, CDP and UKSIF, amongst others.

Does your strategy incorporate any negative screens?

We do not normally exclude or limit exposure to specific industries or sectors, though their ESG factors are an integral part of a company's overall credit risk characteristics. More information on how we can apply screens is available here.

How is ESG research integrated into your credit process?

We assess ESG factors as an integral component of a company's overall credit risk. This approach is consistent with the first principle of the UN-supported PRI which states that signatories should 'incorporate ESG issues into investment analysis and decision-making processes'. In all cases, we aim to fully incorporate ESG considerations into an enhanced credit risk assessment process within our fixed income investment area. Insight's credit analysts are charged with determining the materiality of ESG risks in their contribution to the overall credit risk of a potential investment. Sound corporate governance practices and adequate management of the environmental and social aspects of the business are useful indicators of the overall quality of management: a failure to meet recognised standards of good governance and responsible management will imply higher risks in a company, which may not be adequately compensated by the expected returns from an investment in it. We look for evidence that management have adopted and implemented appropriate policies, systems, and controls to comply with relevant codes, laws and regulations. More information is available here.

Do you have an engagement/stewardship programme?

Insight believes engagement is a fundamental part of risk management, credit evaluation and holding issuers to account. We regularly meet with management and board members to discuss financial and non-financial activities. Access to management, confidence in standards of corporate governance, and long-term drivers of risk and return are central features of the approach. More information available here.

Do you have a Voting Policy?

Although Insight's equity investment activities are comparatively small, we maintain a voting policy that ensures that we routinely vote on their behalf with regard to the UK companies in which they have a shareholding. We retain the services of a specialist proxy voting service to manage our voting activities. We disclose our voting activities in our annual report.

Have you seen increasing client interest for ESG?

There is growing interest in our ESG integration process.  Approximately 50% of all fixed income RfPs/RfIs include questions on our responsible investment activities.  Many clients have Statement of Investment Principles that include ESG factors, which feed through into investment mandates and requests.

How does Insight disclose its responsible investment activities?

Insight considers disclosure a fundamental part of being a responsible investor. We report annually on our responsible investment performance across relevant investment strategies. In addition, we can provide clients with ESG performance assessments within some investments. View our reports here.

What ESG capabilities does Insight have?

There is a dedicated full-time resource with responsibility for process, strategy, systems and specialist research. In addition, we employ an ESG consultant to support our thought leadership, policy and strategy activities.

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