ESG Questionnaire Response - Loomis, Sayles & Company, LP

ESG Policies

1. Please provide your ESG-related policies.

For the most up to date version of our ESG Policy, please refer to our website at: https://www.loomissayles.com/website/about-us/Environmental-Social-and-Governance

At Loomis Sayles, our goal is to deliver superior long-term risk-adjusted returns and effective investment solutions to meet our fiduciary duty to our clients. Environmental, social and governance (ESG) considerations contribute to this goal, and are important to the firm’s culture, the global economy, financial markets, and society at large. ESG considerations are inherently part of our investment decision making, as Loomis Sayles generally takes a long-term view in seeking value.

Loomis Sayles’ Approach to ESG Integration 

We do not subscribe to a single investment process. Each investment team considers ESG integration according to its investment philosophy. ESG risks and opportunities stem from factors including an issuer’s management strength and strategy, the use of human and natural resources, as well as regulatory and political considerations. ESG factors can be critical to evaluating the sustainability of an issuer and the expected impact on investment performance. Loomis Sayles’ investment teams determine the materiality of these factors in investment decisions. We only use screen specific sectors, issuers or themes where client or regulatory restrictions apply.

Engagement is at the Core of Loomis Sayles’ Investment Processes 

Engagement is an integral part of our fundamental analysis across all asset classes. ESG criteria are an inextricable part of this analysis. Direct engagement by our fixed income and equity investment professionals allows the assessment of the quality of a company’s management, strategy, and operations. Our sovereign investment professionals also engage with policy makers and regulators. At the firm level, Loomis Sayles seeks to collaborate with various investor and industry groups to foster best investment management practices.

Exercising our proxy voting responsibility is an important component of ESG engagement for our equity strategies. Our investment teams vote in ways that they believe serve the best interests of long-term shareholder value creation. Our Proxy Voting Guidelines are part of this process.

Loomis Sayles is a Signatory to the UN Principles for Responsible Investing (PRI) 

Loomis Sayles has been a PRI signatory since 2015. We believe the PRI provides a robust framework for monitoring the integration of ESG into our investment processes, with the ultimate goal of meeting our clients’ investment objectives. In addition, we continually assess and evaluate other commitments to ESG principles. For example, we are a Tier 1 signatory of the UK Stewardship Code and have adopted the UK LGPS (Local Government Pension Schemes) Code of Transparency.

Corporate ESG Practices at Loomis Sayles 

Governance Practices 

Loomis Sayles views the exercise of proper oversight and the highest standard of conduct to be the underpinnings of good governance. Firm oversight and direction reside with our Board of Directors and our Risk Management Committee, and we support these efforts by enforcing our Code of Ethics. Senior management sets the tone at the top by articulating the organization’s strategy and values, and by maintaining our culture of accountability, transparency and compliance. Specifically with respect to our ESG initiatives, Loomis Sayles named Kathleen Bochman, CFA, the Director of ESG in early 2018. The Director is responsible for leading the ESG initiatives at the firm, supporting the sustainability efforts as part of the firm's own governance, ensuring the investment teams have access to any additional ESG data and research as needed, and helping to provide ESG solutions for our clients.

Environmental Practices 

In addition, we strive to operate in an environmentally sensitive manner by occupying LEED certified office space, recycling, and offering public transportation incentives. We support flexible work schedules and telecommuting, both for the good of our employees and for their impact on our carbon footprint. The mission of our Green Council, one of our many internal employee resource groups, is to reduce the firm’s environmental footprint utilizing a systematic approach that educates our workforce and seeks to bring about behavioral changes, for a more sustainable and healthier future.

Social Practices 

We feel strongly about the importance of playing a proactive, positive role in the local community. In 2017, Loomis Sayles named Meg Clough the Director of Community Investments. Loomis Sayles has an active community service culture, and a comprehensive charitable giving program. Each year, Loomis Sayles sets aside a portion of our pre-tax income to fund charitable giving targeted at improving the education and health of children and families. Further information is available on our website under Community Partnerships and Nonprofit Partners. Loomis Sayles also encourages our employees' own charitable efforts through firm-sponsored service opportunities and by matching their charitable donations. In addition, we recognize that delivering excellent performance depends on diversity of both people and perspectives. Our firm strives to attract, nurture and retain a dynamic staff that is talented and diverse. To that end, Loomis Sayles has a number of employee resource groups (ERGs), including a women’s network, a gender identity ERG and a multicultural ERG.

2. Are sustainable investing and ESG factors integrated into your investment process and portfolio management decisions? If yes, please provide details.

Yes. At Loomis Sayles, we believe that ESG issues play an important role in the global economy, both from a business and investment perspective. Loomis Sayles embraces its duty to act at all times in our clients' best interest, and we believe that ESG issues impact our goal of achieving superior, risk-adjusted returns. We understand that environmental, social, and corporate governance practices may present risks that need to be evaluated, and we analyze these risks as part of our fundamental research process.

We believe the most effective ESG analysis occurs when we integrate the analysis within our very experienced and robust credit and sovereign analyst teams. They are responsible for deciding how ESG factors affect their view of an issuer’s overall quality and expectation for performance. Our experienced analysts are sector specialists, and have developed relationships with the issuers that they cover, which positions them well to assess the material ESG factors. The analysts are also the best prepared to engage with management teams.

Given the wide range of strategies managed by investment teams across different asset classes, we do not have a uniform investment process. However a number of pillars underpin all the strategies at Loomis Sayles, and we have recently added ESG and Sustainability as a Pillar. These pillars are:

1. A sound investment philosophy. Every Loomis Sayles strategy starts with a solid foundation or “alpha thesis.” This alpha thesis seeks to identify market inefficiencies and the investment process necessary to exploit them.

2. A rigorous repeatable approach. Investment processes must take an exacting, consistent approach to idea generation, portfolio construction, reward-to-risk assessment and decision making in any market environment. But discipline should never mean dogma; each team continually evaluates and refines their investment process in line with the core tenets of their strategy.

3. Proprietary research. In this information age, being well informed is no longer a competitive advantage. High-conviction, prudent risk taking requires deep insights that can only be generated through proprietary research. Tailored research, distinct to each alpha thesis, is an inextricable part of the investment process.

4. Disciplined portfolio construction. Though our strategies have different return patterns and time horizons, they all seek strong risk-adjusted returns. Disciplined portfolio construction requires constant assessment of reward-to-risk at the security and portfolio levels. Investment teams look for asymmetric reward-to-risk opportunities and minimize exposure when information is lacking or insufficient.

5. Integrated risk management. Risk management is central to alpha generation, not ancillary. Our integrated risk management capabilities are customized to each investment strategy—an approach we believe optimizes each team’s ability to identify, analyze and utilize risk.

6. Incorporated ESG Factors. Our investment teams each use a tailored approach to incorporate ESG factors and engage with issuers and companies to meet our clients' objectives. We do not view ESG as an overlay to our investment processes. We view it as an integral component throughout.

Generally, the strategies managed by investment teams at Loomis Sayles are high conviction, low turnover strategies. As such, we consider ourselves to be a long-term investor. This informs our stewardship activities, which focus on ensuring that our investee companies can create long-term, sustainable growth.

3.a. Are you a signatory to the UNPRI?

Yes

3.b. If you are signatory to other coalitions, please list them.

Loomis Sayles is a member of the following RI initiatives, collaborations, and commitments: 

  • UK Stewardship Code (since 2013)
  • Signatory, Principles for Responsible Investment (since 2015)
  • Signatory, LGPS Investment Code of Transparency

3.c. Indicate any other international standards, industry guidelines, reporting frameworks, or initiatives that guide your responsible investing practices.

Loomis Sayles is a member of the following RI initiatives, collaborations, and commitments:

  • Member, Association of Institutional Investors, collaborating with other asset management firms to standardize key language and industry processes
  • Member, SASB
  • Supporter of the TCFD
  • Member, TPI

4. Please describe how ESG oversight and integration responsibilities are structured at your firm, including the process for escalation of key ESG issues. How do you obtain ESG information/data (e.g. public information, third party research, reports and statements from the company, direct engagement with the company)?

 At Loomis Sayles, we made the strategic decision to integrate our ESG work throughout the firm, rather than creating a separate, centralized ESG team. Led by Kathleen Bochman, the Director of ESG, our ESG initiatives are supported by the following committee structures, which represent a broad cross-section of the firm:

  • The ESG Advisory Board, chaired by the Director of ESG, approves major ESG initiatives and meets bi-annually
  • The ESG Committee, a subcommittee of the Loomis Sayles board's Risk Management Committee, oversees ESG implementation and stewardship
  • The ESG Working Committee acts as a working group for ESG initiatives
  • ESG Subcommittees, led by Working Committee members, address specific ESG initiatives, including preparing the annual, UN PRI report, ESG technology, ESG marketing, ESG Best Practices and Climate Change

The purpose of the ESG Advisory Board is to ensure that the key ESG policies, strategies and initiatives are reviewed by a broad group of senior leaders. The Advisory Board includes executives from across the firm as well as portfolio managers from the investment teams.

The ESG Working Committee consists of individuals from across the organization that work to provide resources for ESG research, to report to the UN PRI, to collaborate with industry organizations, consultants, and clients, and to communicate what is happening in the marketplace and within the firm related to our ESG initiatives. The committee meets bi-weekly, with even greater frequency during the first quarter when we are working to prepare the annual UN PRI Assessment. Indeed, since the COVID-19 related shutdown, the ESG Working Committee has maintained daily check-in meetings to ensure our ESG efforts are well coordinated throughout the firm. Other than the Director of ESG, each member of the ESG Working Committee also has a different role at the firm, spending from 10% to 40% of his/her time on ESG initiatives.

5. What channels do you use to communicate ESG-related information to clients and/or the public? Do you produce thought leadership (written reports and publications)? If so, is the information available to the public? Please provide links, if applicable.

We have a number of standardized reports in our proprietary ESG Center. We continue to develop our ESG Center, with a goal of creating a centralized location to share all of our ESG data, and to ensure that the portfolio managers have a user friendly, efficient tool for both portfolio analysis and reporting. MSCI data is currently available in the ESG Center, and we are in the process of integrating Sustainalytics data. In addition, we are a SASB Alliance member, and we are incorporating the SASB materiality framework into the ESG Center as well.

The current reporting includes a number of components. We can show the ESG scores (based on MSCI ratings) of the portfolio holdings versus the appropriate benchmark. We have the ability to report on the top and bottom rated ESG securities in the portfolio, as well as the changes in the ESG ratings over a variety of timeframes.

We have the ability to provide carbon footprint reports using the MSCI carbon tool. These reports show the carbon intensity of both the portfolio and a benchmark. This year we are focusing significantly on climate change education and integration, and are working to assess and integrate new sources of material climate data. We will also be assessing climate scenario analysis tools.

Please find a link to our publication on the green bond market:

https://info.loomissayles.com/beyond-the-label-an-assessment-of-the-green-bond-market

6. Do you have periodic reviews of your ESG process/approach to assess its effectiveness? What are the results? What would cause you to disregard ESG issues in your investment/analysis decisions?

Yes, the Firm's ESG objectives are within the purview of the ESG Committee, led by the director of ESG, with input and approval of the CEO and the ESG Advisory Board. The ESG committee meets biweekly to review the responsible engagement activities of Loomis Sayles, to further the integration of ESG issues into the investment process (including providing state of the art tools to Loomis Sayles' investment professionals), to oversee activities related to membership in advocacy groups, including the UNPRI and the UK Financial Reporting Council (UK Stewardship Code), and to further the progress of Loomis Sayles in engaging with issuers on matters of environmental, governance and social practices. The ESG Working Committee sets goals for the firm's engagement activities, evaluates third party ESG data and tools, considers membership or signatory opportunities (such as the TCFD and other initiatives), plans and delivers internal training, identifies external training opportunities, prepares public statements on ESG activities at Loomis Sayles and other communications (including in response to specific client requests), prepares the UN PRI assessment, and addresses other ESG-related matters. In addition, our Chief Investment Risk Officer's semi-annual reviews ensure that investment teams are aware and appropriately considering the responsible investment objectives set by the firm.

The Strategic Alpha team manages a wide variety of portfolios across asset class, geographies, and product structures. We manage money for a diverse set of clients, who have guidelines and regulatory frameworks that in many cases inform or require specific processes and exclusions, related to ESG factors.

Material ESG issues – both ESG risks and opportunities - are fully incorporated into our fundamental analysis, and are weighted in importance based on the materiality of each issue.

Our goal is to deliver superior long-term risk-adjusted returns and effective investment solutions to meet our fiduciary duty to our clients. As part of our bottom-up analysis process, we have always identified companies with deficient Governance, Environmental vulnerabilities and Social issues that could impair our ability to be paid back as lenders, or materially harm the credit quality of the debt issuer. More recently, the formal process of Environmental, Social and Governance (ESG) integration has become part of our investment decision making process. We integrate ESG into our fundamental research, engagement, and valuation analysis, as well as our portfolio construction and portfolio risk management.

We take a long term sectoral view of ESG by investigating Environmental, Social and Governance factors. We focus on the overall effect of the ESG issues on the valuation of the underlying business. ESG is integrated throughout many steps of our investment process including our proprietary fundamental research, effective engagement and robust valuation work. Our investment analysts focus on material ESG factors using internal and external tools to help evaluate these factors. We believe climate change has material implications for investing and we are incorporating new carbon data and climate scenario analysis as part of our efforts to both manage risk and identify carbon transition opportunities.  

Climate

7. Describe how you identify, assess, and manage climate-related risks.

In 2020, our CEO wrote a set of Guiding Principles on Climate change, in collaboration with our ESG Climate Change subcommittee. In it, he stated that as a firm, we believe that climate change is one of the most important global issues of our time.

While at Loomis Sayles each of our investment teams has unique philosophies and investment processes, we have developed a set of shared principles that will guide the investment approach taken toward climate change going forward. These principles are:

We agree with the overwhelming scientific data that human activity is contributing to climate change and we see the need for bold action on a global scale. Governments, corporations and individuals must respond to this growing threat. The need to meet the real and serious challenge inherent in climate change presents critical risks and investment opportunities across all asset classes. At this point in history, we anticipate a time of sweeping change.

Material climate change considerations are inherently part of our investment decision-making. Each investment team considers climate change integration according to its investment philosophy. To support our investment teams, we are committed to providing education on a growing set of climate data and transition scenario analysis tools.

Direct engagement is an integral part of our fundamental analysis across all asset classes. As a fiduciary and a good steward of our clients’ capital, we are unequivocally focused on all investment risks and opportunities, including climate. This means that we must regularly engage with issuers to assess their climate impact, policies and risks.

8. Describe the climate-related risks and opportunities you have identified over the short, medium, and long term.

The Strategic Alpha Team believes climate change has material implications for investing and we are incorporating new carbon data and climate scenario analysis as part of our efforts to both manage physical and transition risk, as well as to identify carbon transition opportunities.

As a firm Loomis Sayles, we firmly believe that climate change is one of the most important global issues of our time. We are happy to see that governments, businesses and civilians around the world are mobilizing to change course and address climate change. This response has, and will continue to, impact global financial markets.

We understand that our clients are looking to us and their other asset managers for perspectives on this issue as they address climate change in the context of their own investment policies.

While at Loomis Sayles each of our investment teams has unique philosophies and investment processes, we have developed a set of shared principles that will guide the investment approach taken toward climate change going forward. These principles are:

We agree with the overwhelming scientific data that human activity is contributing to climate change and we see the need for bold action on a global scale. Governments, corporations and individuals must respond to this growing threat. The need to meet the real and serious challenge inherent in climate change presents critical risks and investment opportunities across all asset classes. At this point in history, we anticipate a time of sweeping change.

Material climate change considerations are inherently part of our investment decision-making. Each investment team considers climate change integration according to its investment philosophy. To support our investment teams, we are committed to providing education on a growing set of climate data and transition scenario analysis tools.

Direct engagement is an integral part of our fundamental analysis across all asset classes. As a fiduciary and a good steward of our clients’ capital, we are unequivocally focused on all investment risks and opportunities, including climate. This means that we must regularly engage with issuers to assess their climate impact, policies and risks.

9. Describe the resilience of your investment strategy, taking into consideration different climate-related scenarios.

The Strategic Alpha team has maximum flexibility to invest in opportunities across a wide range of asset classes and markets enabling them to respond tactically to shifting economic environments and market events, including different climate related scenarios as they arise in the investment process. We believe this structural flexibility benefits us in a rapidly changing climate environment and market, where both physical and transition risks may increasingly reflected.

As a firm, climate change was a primary focus area in 2020 and continues in 2021. This focus included articulating our firm’s philosophy on the risks and opportunities related to climate change, ensuring our investment teams are able to appropriately incorporate the material climate related data and research into their investment processes, assessing the proliferating number of climate related global organizations, to determine which ones are most meaningful and aligned with our client interests and our investment objectives, performing climate related scenario analysis aligned with the TCFD in 2020, and collaborating with industry organizations and other peers to engage on key climate related issues.

We created a Climate Change Subcommittee. The goal and objective of the committee is broad: to assess climate change industry organizations and vendors, to raise awareness among the investment teams about material climate-related topics, and to work with the technology team to ensure the investment teams can easily and readily integrate climate-related data within their investment processes. The subcommittee will also help to identify any firm-level engagement initiatives focused on climate change.

As a PRI signatory, we began following the recommendations of the TCFD (the Task Force for Climate Related Financial Disclosures). We have hired a consulting firm, Manifest Climate (previously called MANTLE314), who worked with us to complete our first submission. In 2021 we plan to report more extensively on TCFD. Manifest Climate conducted a climate change education presentation in February 2020 to our senior management, all of our investment teams, analysts and relationship managers. Since then, we have instituted a monthly climate change education program, where Manifest presents a curated climate report to Loomis Sayles, based on the prior month’s climate news and the impact on specific sectors in the market. We are also assessing additional climate change related data and tools.. We recently integrated the ISS climate assessment data, which includes forward looking climate scenario analysis.

We also assessed a number of affiliations, or ‘support for’, a number of climate-related initiatives. For example, we are now supporting the Transition Pathways Initiative (TPI). The goal of the TPI is to get companies (issuers) to align themselves with the transition to a low carbon economy. The TPI encourages material climate disclosure from companies to help investors assess how companies are positioning themselves for the transition to a low carbon economy. We also signed up to CDP.

10. Do you track the carbon footprint of portfolio holdings?

Yes

If yes, please describe the methodology and metrics used, and whether you have a set target for reducing the portfolio's footprint.

We have the ability to measure and monitor the carbon footprint of our portfolios, and compare it to relevant benchmarks, using the MSCI calculator. We plan to incorporate this data into our ESG Center this year. In addition, we have assessed a number of additional data vendors and are considering incorporating these carbon footprint and climate change tools. Our Chief Investment Risk Officer has incorporated carbon footprint data and other ESG metrics into his semi-annual investment team reviews, where the quality of a portfolio manager's portfolio in terms of ESG ratings will be reviewed.

11. What are your firm's emissions? Please demonstrate how/whether you are taking steps to reduce these emissions.

As a firm we gather emissions data associated with our travel and entertainment activities, but do not currently track data from other operating factors at this time. As a part of our disclosures in line with the recommendations of the TCFD we anticipate analyzing additional reporting.

The mission of our Green Council, one of our many internal employee resource groups, is to reduce the firm’s environmental footprint utilizing a systematic approach that educates our workforce and seeks to bring about behavioral changes, for a more sustainable and healthier future.

Diversity

12. Please provide the composition of your senior leadership team and board of directors, including women and visible minorities. How do you encourage diversity of perspectives and experience?

As of 06/30/21, 25% of the management committee was female. Please refer to the attachment EEO Q2 2021 for more information regarding diversity at the firm level.

Loomis Sayles has a multi-pronged strategy to address Diversity, Equity and Inclusion (DEI) at the firm and in the communities in which we live.

At Loomis Sayles, we believe in a workplace culture that acknowledges, supports, and invests in the diversity of all its members. This is critical in order to fulfill the investment needs of our clients worldwide, manage the complexity of our dynamic and global business and build a community where all employees have an equal opportunity to expand on their potential. We define diversity as spanning all dimensions of identity, including but not limited to race, ethnicity, nationality, gender identity & expression, physical & mental ability, military status, sexual identity & orientation, marital status, religion, socioeconomic background and age.

We recognize the path toward diversity, equity and inclusion of all persons across all levels of our organization, and in the financial services industry, will be an ongoing and extensive process. Despite these challenges, we are committed to fostering an environment where all employees are represented, respected, valued and empowered to apply all of the dimensions of their identities to enrich Loomis Sayles as a whole.

Proxy Voting

13. What proportion of the time do you vote with or against management on shareholder resolutions, board appointments, and auditor appointments? What proportion of the time do you vote with or against management on ESG issues? How does this break down for climate, diversity, and remuneration issues?

Exercising our proxy voting responsibility is an important component of ESG engagement for our equity strategies. Our investment teams vote in ways that they believe serve the best interests of long-term shareholder value creation. Our Proxy Voting Guidelines, available upon request, are part of this process.

14. What proportion of all independent ESG shareholder resolutions do you support?

Not applicable in our fixed income strategies. 

15. What proportion of remuneration packages do you vote in favour of? In your view, is the current level of executive remuneration too high, too low, or about right? How is this view reflected in your voting record on remuneration?

Not applicable in our fixed income strategies. 

16. Have you ever co-filed an ESG-related shareholder resolution? If so, how many and with what frequency?

Not applicable in our fixed income strategies. 

17. Have you ever voted against a director for explicitly ESG-related reasons? If so, why? If not, would you consider doing so in the future?

Not applicable in our fixed income strategies. 

Engagement

18. How many companies do you engage with? What proportion of your engagements focus on environmental and social issues? What are your engagement goals? Are these goals outcome/action-based (e.g. decreases in emissions or increases in number of women on the board) or means-based (reporting on emissions or number of women on the board)?

In 2020 we engaged with 696 issuers. 58% of our total engagements were focused on environmental and social issues.

As part of our due diligence meetings with an issuer’s management, we openly engage in dialogue on strategy, performance and the management of the issuer’s risks. ESG issues can directly impact the long-term prospects of the issuers we consider for our clients’ accounts. Where we believe that an environmental, social or governance issue presents a key risk, we will actively discuss the issue with management.

Generally, the analysts at Loomis Sayles are responsible for engagement with issuers. Engagement is at the core of Loomis Sayles research process and often includes meetings with management, rating agencies and regulators. The assessment and tracking of key ESG issues are intended to permit our investment professionals to develop an informed opinion of the issuer over time. They do this by observing management’s actions and conduct as it deals with strategy, resource management, regulatory changes, and its attention to such potential risks as environmental and climate change. ESG-related risks and opportunities are an inextricable part of the assessment.

Our ESG Engagement Database is an application developed to collect our discussions about environmental, social, and corporate governance topics with company management teams. We have now been using our internally developed ESG engagement database for four full years, and we enhance the quality of the tracking each year. In 2021 we plan to ask analysts to focus increasingly on the ‘outcome’ of their engagement, for example, and to better document the critical details of the engagement discussions.

From a prioritization standpoint, the analysts focus on engaging on the most material ESG factors to the assets that they are assessing. In 2021 we are further prioritizing engagement, to include large holdings across the firm, and specific thematic topics related to climate change based on the firm’s focus on this important topic.

19. What is your policy around the escalation of engagement; how and why might this happen and what is the ultimate tool you might use (e.g. voting against board re-election, etc.)?

We currently do not have formal escalation strategies for when an engagement is unsuccessful.