ESG Questionnaire Response - Pacific Investment Management Company LLC (PIMCO)

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Report date: August 14, 2020

UNPRI Transparency Report

 PIMCO's full response
(PDF, 20.3 MB)

ESG Policies

1. Please provide your ESG-related policies.

Please note the PIMCO Canada Canadian CorePLUS Bond Trust does not have an explicit environmental, social and governance (“ESG”) investment objective. That said, ESG-related issues are an increasingly critical factor in understanding global economies, markets and the credit worthiness of issuers. They are also crucial in stimulating creative management practices and innovative new technologies. As an allocator of capital, PIMCO’s goal is to understand the sustainability-related linkages that underpin economic growth, those results, and, ultimately, the impact on the long-term health of companies and capital markets. As such, our firm-wide investment process evaluates ESG risk factors from both the top-down (i.e. macro) and bottom-up (i.e. security specific) in a process that encompasses all of our assets under management, including the PIMCO Canada Canadian CorePLUS Bond Trust.  

PIMCO has a published ESG Investment Policy Statement that guides our responsible investment procedures and standards for reporting. 

It includes our ESG mission statement, which is: to deliver risk-adjusted returns that are consistent with our clients’ objectives, through an investment process that is designed to identify the medium- to long-term dynamics associated with sound governance and the sustainable utilization of both human capital and natural resources. 

The Policy Statement also describes our investment process, referencing both our top-down (i.e. macroeconomic, long term trends) and bottom-up (i.e. sector and security specific) methodology for ESG integration. In addition, it addresses our ESG platform as well as our inclusion, diversity and culture efforts. 

The policy statement is publicly available on PIMCO’s website via the following link: 

https://www.pimco.com/en-us/investments/esg-investing  

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

Please note the PIMCO Canada Canadian CorePLUS Bond Trust is not a dedicated ESG labeled fund, but rather integrates material ESG factors into the broad research process across fixed income assets. 

At the firm level, PIMCO incorporates material ESG factors into the investment research process to better assess issuer risks. Our process emphasizes rigorous analysis of broad secular trends, which are at the core of both global ESG trends and long-term asset returns. PIMCO has developed a robust platform specialized in supporting ESG-focused investment solutions based on our belief that ESG integration is essential to optimizing risk-adjusted returns over the long-term. For this reason, our investment process evaluates ESG risk factors from both the top-down (i.e. macro) and bottom-up (i.e. security specific) in a process that encompasses all of our assets under management. 

From the top-down, the first and most important step in PIMCO’s process is to correctly identify the major long-term themes that will impact the global economy and financial markets. PIMCO believes that such analysis is fundamental to making sound investment decisions. The firm’s annual Secular Forums are devoted to identifying and analyzing these longer-term trends and the analysis of ESG-related issues fits directly into that process. 

Please refer to Exhibit 1, Accompanying Illustrations for an example of how PIMCO blends its macro analysis with detailed bottom-up work. 

The firm’s global research teams aim to evaluate ESG-related issues as part of their bottom-up analysis. 

PIMCO aims to consider all potential risks and opportunities that could affect particular issuers or industries, including those that are ESG-related. To facilitate the systematic integration of ESG risk factors in our analysis and help to monitor ESG related risks, we are continually enhancing our proprietary research with specific ESG related attributes and dedicated scoring. In addition, we have hosted training sessions for our analysts on available scoring methodologies, ESG systems, data and tools. 

ESG data and analysis, both internal and external, are readily available to all portfolio managers, traders and research analysts across the firm which allows portfolio managers to make trading decisions which fully reflect the ESG risks of a given issuer. 

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

Yes

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

As a leading global asset manager, PIMCO frequently receives requests to sign up to different initiatives that support various causes and guidelines including ESG efforts. Our ESG team vets and reviews each potential opportunity to ensure it aligns with our ESG philosophy and approach. We are highly involved with ESG and other sustainability efforts globally, helping to define global sustainability standards, and encourage greater disclosure from issuers. Below refer to Exhibit 2, PIMCO ESG Industry Leadership, for a list of our industry leadership with global affiliations and initiatives. 

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

Below refer to Exhibit 2, PIMCO ESG Industry Leadership, for a list of our industry leadership with global affiliations and initiatives. 
In addition, we have worked with members of the Human Capital Management Coalition, which covers wages in addition to other elements of an effective human capital strategy. We also continue to work with the Sustainability Accountment Standards Board (SASB) to continue to refine human capital metrics across all sectors, which covers the topic of wages. 

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 PIMCO, we define ESG Integration as the systematic integration of material ESG factors into investment research to enhance our client’s risk-adjusted returns. We believe incorporating these non-financial factors should be part of a robust investment process. We recognize that ESG factors are increasingly material inputs into our understanding of global economies, markets, industries and business models. Whether climate change, income inequality, shifting consumer preferences, regulatory risks, talent management or unethical conduct, ESG factors are important considerations when evaluating long-term investment opportunities. These factors are relevant for all asset classes, spanning public and private markets. Our commitment to ESG integration is what led PIMCO to become a signatory to the UN Principles of Responsible Investment (PRI) in September 2011. 

Integrating material ESG factors into the evaluation process does not mean that ESG information is the sole consideration for an investment decision; instead, PIMCO’s portfolio managers and analyst teams evaluate a variety of financial and non-financial factors, which can include ESG considerations, to make investment decisions. By integrating material ESG factors into the evaluation process, PIMCO is increasing the total amount of information assessed to generate a more holistic view of an investment, in efforts to deliver the best performance outcomes for our clients. 

ESG Research 

The firm relies primarily on internal research for decision-making; however, PIMCO also screens substantial amounts of external research. External research can help PIMCO understand and anticipate the views and opinions of market participants, which in turn helps the firm gauge market sentiment and trends.
 

At PIMCO we regularly evaluate ESG research providers which may add additional input into our in-house analysis conducted by our credit, sovereign and mortgage analyst teams. In addition to Bloomberg, PIMCO currently utilizes MSCI as the primary external provider of ESG ratings and research but we also use Reprisk for controversies, CDP for climate change, TPI for low-carbon transition, Human Impact and Profit (HIP) for municipal ESG research, Maplecroft for sovereign insights, and Freedom House for data on sovereigns to mention a few. MSCI data flows directly into our proprietary IT systems, enabling credit analysts to use this information efficiently. The research and analysis provided by external data providers is one of many factors in PIMCO's ESG analysis of issuers, the outcome of which is a proprietary ESG assessment and score which may differ significantly from that of other providers.   

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.

Firm Level ESG Reporting 

As a UNPRI signatory, we participate in the annual UNPRI questionnaire on the implementation of the six principles. PIMCO’s answers to this questionnaire are publicly available. 

PIMCO publishes an annual ESG Investing Report to address the integration of ESG factors into our investment process and engagement work on behalf of clients, among other ESG topics. Please refer to the attached Exhibit 3, PIMCO ESG Investing Report, for an example of PIMCO’s extensive reporting abilities. 

In addition, PIMCO also actively publishes research reports, videos and publications about ESG and sustainable investment. PIMCO professionals have written thought pieces regarding ESG topics and these can also be found on our ESG dedicated website. For more details, please refer to https://www.pimco.com/en-us/our-firm/esg or https://blog.pimco.com/en/

As the firm’s ESG efforts continue to grow, PIMCO will continue to invest in the firm’s infrastructure, reporting and monitoring in order to provide ever-greater value-add to our clients. 

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. PIMCO has a dedicated ESG Leadership Team in place that is responsible for leading firm-wide ESG integration, enhancing our ESG capabilities and supporting the development of portfolios with explicit ESG objectives. The group sets objectives and evaluates strategic initiatives on a continuous basis throughout the year. 

The PIMCO Canada Canadian CorePLUS Bond Trust does not have an explicit ESG focused investment objective. PIMCO’s portfolios incorporate material ESG factors into the research process, but these factors are not directly used in portfolio construction decisions. 

Climate

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

While the PIMCO Canada Canadian CorePLUS Bond Trust does not have an explicit ESG focused investment objective, our climate risk analysis framework serves the whole spectrum of PIMCO’s ESG-specific and broader investment strategies, including the PIMCO Canada Canadian CorePLUS Bond Trust. Our proprietary climate tools are designed to empower portfolio managers to better manage and mitigate climate-related credit risks in our portfolios. 

Climate Risk Factors 

PIMCO’s ESG desk works with members of the portfolio management team to develop a harmonized ESG integration and engagement framework for industry segments, which helps ensure that our ESG analysis reflects the sector-specific risks most relevant to each issuer. 

PIMCO believes that climate-related factors may have material impacts on issuers’ credit quality (now and over the long term), affecting the full range of fixed income and related asset classes e.g. mortgage-backed securities, corporate credit, sovereigns and municipalities. The investment implications of climate change, in both the short and long term, stem primarily from two main types of risks: transition risks and physical risks. Please refer to Image 2 in Exhibit 1, Accompanying Illustrations for more details. 

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

If the internationally agreed 1.5°–2°C limit for global warming is to be met, high carbon intensity sectors will be at increasing risk from tougher climate policies and higher carbon prices. Measuring and managing those risks is critical, and we expect companies to evaluate climate risks and opportunities for the business and, as needed, to develop a climate policy and strategy. 

Carbon efficiency is an area that our analysts monitor vigorously when analyzing a credit issuer within an industry with significant environment impact. When we look at carbon prices, we incorporate them as a cost variable in the analysis of credits. For example, for utilities the carbon intensity of the installed capacity is a key component of our analysis, as it determines the relative competitiveness of generation assets on the cost curve. We base our near term view of cost competitiveness of electricity generation on the traded commodity prices. When analyzing the medium to long term market positions of utilities, we take price outlooks like the one provided by the European Commission, IEA or other authorities into consideration. 

Companies with the least diversification in their generation mix and with the highest carbon concentration have the highest negative exposure to increasing carbon prices in our view, especially as the correlation of carbon prices and electricity prices (i.e. cost pass through) is expected to weaken with a growing share of generation from renewables. We assess the relative carbon intensity and look for companies with either a low carbon footprint which positions the assets well in the electricity merit order. For companies with more diversified generation portfolios, we look for companies that are investing in the areas that allow for a reduction of carbon intensity to maintain cost competiveness of their generation assets. 

Please refer to Exhibit 3, PIMCO ESG Investing Report 2019, for further detail on PIMCO’s climate change analysis. 

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

PIMCO aims to systematically integrate relevant climate factors into our top-down (i.e. longer term macro and socio-economic view) process through our annual Secular Forum. This was the case during our 2019 Secular Forum which included a focus on climate-related shocks. Further, subject to relevant business limitations, we also seek to integrate relevant climate factors into our bottom-up assessment. Importantly, all PIMCO portfolios reflect these top-down and bottom up views, including the PIMCO Canada Canadian CorePLUS Bond Trust. 

Please refer to Image 1 in Exhibit 1, Accompanying Illustrations for more details. 

Our analytical framework to evaluate climate risk serves the whole spectrum of PIMCO’s environmental, social and governance (“ESG”)-specific and broader investment strategies, including the PIMCO Canada Canadian CorePLUS Bond Trust. We have developed several proprietary tools to help uncover opportunities and manage climate risk in investment portfolios; the insights from these tools are designed to empower portfolio managers to better manage and mitigate climate-related credit risks 

PIMCO has also set up a Climate Risk Working Group, which includes representatives from various teams such as Economist, Risk, Analytics, Client Solutions, Credit and Portfolio Management. This group is focused on embedding climate-related risk into existing PIMCO core stress-testing tools, fund risk profiling and research. This includes a focus on scenario analysis based on emerging methodologies and guidelines, such as those seeking to model the potential impact on bond prices in the event of an extreme and sudden climate transition or failure to act. 

Finally, at the firm level, our climate strategy broadly aligns to the recommendations of the TCFD. As investors we recognize that climate change will likely have a profound impact on the global economy, financial markets, and issuers. Attached is our recent climate Viewpoint (Exhibit 4), which has more information on our approach and proprietary tools to incorporate climate risk evaluations in our investment decisions. PIMCO will continue to improve our climate risk assessments, disclosures and portfolio monitoring. 

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

No

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

While the PIMCO Canada Canadian CorePLUS Bond Trust does not have an explicit ESG focused investment objective, our climate risk analysis framework serves the whole spectrum of PIMCO’s ESG-specific and broader investment strategies, including the PIMCO Canada Canadian CorePLUS Bond Trust. Our proprietary climate tools are designed to empower portfolio managers to better manage and mitigate climate-related credit risks in our portfolios. 

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

PIMCO recognizes the importance of reducing the carbon footprint of our operations, and the firm is therefore committed to supporting environmental sustainability across our firm. Some of the steps we have taken include providing collection bins to encourage recycling across the firm, printing approximately 25% of documents on recycled paper and utilizing Energy Star rated LCD computer screens. 

In keeping with our firm’s commitment to sustainability, we are also incorporating a variety of sustainable design features into our new Newport Beach office. These sustainable features have been reviewed by a third party council (The Green Building Certification Institute, or GBCI), in order to ensure, validate, and measure the sustainable impact of our goals. This review process is known as Leadership in Energy and Environmental Design, or LEED, Certification, which is a world-wide green building certification program. There are currently over one billion square feet of LEED Certified buildings, with another six billion square feet currently under review. We are proud to share that our Newport Beach office received its ‘LEED Gold’ certification in November 2014. 

Some of the sustainable design features we are incorporating into our new headquarters include: 

  • Reducing water consumption by over 35% by incorporating efficient fixtures
  • Reducing lighting power consumption 20% below California’s stringent Title 24 requirements
  • Reducing energy use associated with heating and cooling by 18% below the standard baseline
  • Using low-emitting construction materials, for fresher indoor air quality
  • Securing 50% of all wood used for construction and furniture from the Forest-Stewardship-Council, which helps protect the depletion and over forestation of our forests
  • Installing charging stations in the parking garage to accommodate electric vehicles, and creating designated parking spaces for carpooling and low emission vehicles
  • Reducing the building’s power consumption by utilizing Energy Star rated equipment and appliances. Over 75% of the power consumption from this new equipment will be Energy Star rated
  • Donating, recycling or selling our existing furniture so that it will not become landfill debris
  • Offsetting all energy used with renewable power sources for 2 years following occupancy
  • Implementing a Green Cleaning plan to keep the interior air quality free of contaminants
  • Diverting over 95% of all construction demolition debris from our landfills
  • Continuing our recycling efforts by designating over 2,400 cubic feet of space throughout the building for recycling collection bins in addition to tableside bins provided for all staff.

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?

Please refer to Exhibit 5, PIMCO EEOC and IDC Statement, and Exhibit 6, PIMCO IDC Overview

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?

PIMCO maintains a written voting policy and evaluates all proxies in accordance with this policy unless we do not have client authorization to do so. It should be noted that it is unusual for the firm to engage in proxy voting for fixed income strategies. 

Where PIMCO does engage in proxy voting, our policy seeks to ensure that voting and consent rights are exercised in clients’ best interests and take into consideration any potential conflicts of interest that may arise. Each proxy is voted, and each consent is given, on a case-by-case basis, taking into account relevant facts and circumstances. For equity securities, PIMCO has retained an Industry Service Provider (“ISP”) to provide recommendations as to how to vote proxies and to cast votes as PIMCO’s agent on behalf of clients in accordance with its recommendations, unless otherwise instructed by PIMCO. With respect to the voting of proxies relating to fixed income securities, PIMCO’s fixed income credit research group is responsible for researching and issuing recommendations as to how to vote the proxies. 

The Portfolio Management function is responsible for monitoring and providing direction on voting and consent events where PIMCO has been granted discretionary authority to vote by Clients. 

PIMCO’s Global Proxy Voting Policy Summary is available online at the following website:

https://www.pimco.com/en-us/general/legal-pages/proxy-voting-policies-and-procedures 

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

Please refer to response to Q.13

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?

Please refer to response to Q.13

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

Please refer to response to Q.13

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?

Please refer to response to Q.13

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 portfolios with ESG focused objectives, PIMCO aims to engage intensively with the issuers in the portfolio to help influence ESG policies and drive more sustainable business practices. However, for portfolios that do not have an explicit ESG focused objective, like the PIMCO Canada Canadian CorePLUS Bond Trust, there is no explicit objective to actively engage with ESG issuers on sustainability practices. 

That said, at the firm level, on an annual basis, our team of over 60 credit analysts conduct more than 5,000 meetings and calls with company management teams. In addition to discussing financial matters, we also focus on strategic issues that relate to ESG risks and sustainable business management practices. For portfolios like the PIMCO Canada Canadian CorePLUS Bond Trust this engagement is focused on material ESG issues that can have significant impacts on the credit profile of the issuer. Moreover, our non-ESG portfolios might benefit from the intensive engagement work pursued in the ESG dedicated portfolios, given that issuers may be held in both strategies. However, there is no obligation from the portfolio manager to own securities where PIMCO’s ESG analyst team is in the midst of a deep dive engagement as ESG engagement is not an objective of our non-ESG portfolios. 

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.)?

Please refer to our response to Question 18

Appendices