Jonathan Bailey is a Managing Director and Head of ESG Investing, and Savannah Irving is an Associate at Neuberger Berman LLC. This post is based on their Neuberger Berman memorandum.
In recent years a variety of market disrupting events have underscored the importance of active ownership and the analysis of material environmental, social and governance (ESG) factors in fundamental credit research as well as investment decision-making. In our view, asset managers who leverage their relationships with issuers are best positioned to manage these ESG risks and take advantage of ESG opportunities. As highlighted in our prior ESG engagement reports, Neuberger Berman views direct issuer engagement as a critical tool to mitigate portfolio risks while generating long-term sustainable returns.
During the past year our established relationships with issuers in developed and emerging markets enabled us to have meaningful engagements with a number of management teams. We engaged on key ESG issues such as climate change, community relations and human capital management. While these ESG issues present varying challenges and complexities, both transparency and accountability are key determinants of the success of our engagements with corporate credit issuers. We encourage issuer alignment with external frameworks such as the United Nations Sustainable Development Goals (UN SDGs), the Task Force on Climate-Related Financial Disclosures (TCFD) and the SASB Standards to improve the transparency of issuers’ credit profiles. We also assess the capability of management teams to set and successfully execute sustainability targets, as evidenced in the emerging practice of linking ESG Key Performance Indicators (KPIs) to executive variable compensation with a focus on enhancing accountability.