PIMCO GIS Global Low Duration Opportunities ESG Fund

Sustainable, Responsible &/or ESG Policy:

PIMCO Low Duration Opportunities ESG Strategy

The PIMCO GIS Low Duration Opportunities ESG Fund is an ESG-optimised, absolute return fixed income strategy that aims to generate consistent excess return over the ICE BofA SOFR Overnight Rate Index with limited volatility, while focusing on capital preservation and liquidity management. The Fund is diversified broadly across sectors, regions, and issuers and PIMCO’s top-down, bottom-up and internal ESG screening process which includes ESG exclusions, evaluation and engagement decisions. The strategy is designed to access PIMCO’s highest conviction global fixed income opportunities – our secular thinking, global themes, and integrated investment process – without the constraints of a formal benchmark. The strategy seeks to sustainably outperform a cash benchmark, while focusing on capital preservation over a rolling 12-18 month period. To that end, our approach allows for more manager discretion to adjust duration exposure, allocate across sectors and more fully express our active views.

The Fund is run using PIMCO’s industry-leading ESG investment process, which is built off a philosophy to: exclude, evaluate and engage. The Fund seeks to have no exposure to issuers engaged principally in the oil industry, including extraction, production, refining, transportation, or the production, sale of coal and coal-fired generation (green/sustainable bonds of such issuers are permitted). Similarly, the Fund seeks to have no exposure to alcoholic beverages, tobacco products or military weapons, the operation of gambling casinos, or in the production or trade of pornographic materials. The Fund will seek to emphasize issuers committed to sustainability with strong ESG credentials, and to reduce the carbon footprint of the portfolio, including intensity and emissions of the portfolio’s corporate holdings. Additionally, the Fund will target a strategic allocation to green, social and sustainability-linked bonds, as well as issuer engagement on sustainability topics.

In line with the rest of our solutions that follow sustainability strategies and guidelines, this portfolio aims at:

• Avoiding issuers and sectors fundamentally at odds with ESG practices
• Achieving a meaningful exposure to ESG-labelled bonds (Green, Social, Sustainability and Sustainability-linked Bonds)
• Active monitoring of the Fund’s carbon profile
• Engagement activity on sustainability issues with portfolio companies

Sustainability Philosophy

At PIMCO, we define ESG Integration as the consistent consideration of material ESG information in our investment research process with the goal of enhancing our clients’ risk-adjusted returns. We recognize that ESG factors can be material inputs into our understanding of global economies, markets, industries and business models and that these risks may materialize over the short, medium, or long-term horizons. Relevant ESG factors may relate to management quality, balance sheet management, climate change risks, resource inefficiency, environmental liabilities, regulatory risks, workforce management, and reputational risk for an issuer, among other topics. Where relevant, we believe that incorporating ESG factors is part of a robust investment process to ultimately help manage portfolio risks and identify opportunities across markets and asset classes. Our commitment to ESG integration was one of the main drivers that led PIMCO to become a signatory to the Principles of Responsible Investment (PRI) in September 2011.

The integration of ESG factors into PIMCO’s investment process seeks to account for material ESG risks in both top-down macro positioning and bottom-up security evaluation. To the extent that ESG risks are material for particular sectors, issuers, etc., our fundamental credit views will reflect this. In addition to the integration of material ESG factors into the credit view, we also assign proprietary issuer ESG scores and feature a separate ESG analysis alongside this view. While ESG information is presented for issuers and securities, ESG scores play a role in portfolio construction for accounts which follow sustainability guidelines. PIMCO’s portfolio managers and analyst teams evaluate a variety of factors, which can include ESG considerations, to make investment decisions. PIMCO uses ESG integration, as it does with a variety of other data sources - to increase the volume of information and perspectives to generate a more holistic view of an investment. By investing with a broad and diverse set of information, we believe we can deliver the best performance outcomes for our clients.

Alongside the utilization of PIMCO’s firmwide ESG integration, the PIMCO GIS Low Duration Opportunities ESG Fund is built on three guiding sustainability principles:

• Exclude: We exclude issuers fundamentally misaligned with sustainability practices – both by their governing terms and in practice. Our exclusions process is overseen by the PIMCO ESG Exclusions Group.
• Evaluate: Using our proprietary and independent ESG scoring system, we seek to optimize portfolios that follow sustainability strategies and guidelines to emphasize companies in each industry with leading ESG practices or those who are progressing toward their ESG objectives, limited carbon footprint and high quality ESG labeled bond frameworks. Members of PIMCO’s global research team are responsible for assigning ESG scores to each of the issuers under their coverage in collaboration with our dedicated ESG analysts and ESG scores are augmented by insights from PIMCO’s engagement activities.
• Engage: Our final building block is constructive and collaborative engagement with issuers to influence ESG practices over time. We believe that allocating capital toward issuers willing to improve the sustainability of their business practices has the potential to benefit a strategy’s investment outcomes rather than simply excluding issuers with poor sustainability metrics and favouring those with strong metrics. As such, PIMCO portfolios that follow sustainability strategies and guidelines seek to overweight issuers that demonstrate a clear willingness to move toward better ESG-related practices, consistent with meeting the SDGs.

Ultimately, the Fund’s investments are governed by its prospectus, applicable laws and regulations.

Process:

ESG Integration: Firm-Wide Assets

At the firm level, PIMCO integrates material ESG factors into the investment research process where applicable to 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. Additionally, many ESG risks are idiosyncratic to the sector, and the specific issuer – sometimes the specific security. For this reason, our investment process evaluates relevant ESG risk factors from both the top-down (i.e. macro) and bottom-up (i.e. security specific) where applicable. In addition to the belief that ESG integration is essential to optimizing outcomes over the long-term, PIMCO has developed a robust platform specialized in supporting investment solutions with sustainability objectives.

From the top-down, the first and most important step in PIMCO’s process is to 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. Similarly, quarterly updates at the firm’s Cyclical Forums further address near-term sustainability related themes and potential investment implications.

As illustrated below, PIMCO blends its macro analysis with detailed bottom-up work.

SOURCE: PIMCO. For illustrative purposes only.

Concurrently, the firm’s global research teams aim to evaluate material ESG-related issues as part of their bottom-up analysis of an issuer.

PIMCO aims to consider relevant risks and opportunities that could affect particular issuers or industries where appropriate. We consider how ESG factors may impact the issuer more broadly, and the potential effect on valuations. This can include an issuers’ impact on the environment and society, and how that impact may in turn affect the view of the issuer from relevant stakeholders including their investors, regulators, customers and labor force. To facilitate the 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 to the ESG team working alongside analysts across asset classes, we also host training sessions on available ESG frameworks, 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 enables portfolio managers to make trading decisions that incorporate the material ESG characteristics of a given issuer.

PIMCO considers secular analysis so important that the firm devotes three days each year to what is called the “Secular Forum,” at which the firm formulates the firm’s outlook for global bond markets over the next five years. Selected members of the investment staff are assigned secular topics to monitor, including monetary and fiscal policy, inflation, demographics, climate change, technology, productivity trends, and global trade. Secular researchers tackle their subjects on a global basis and approach them over a multi-year horizon. At the Secular Forum, secular researchers summarize their findings for all the firm’s investment professionals. In addition, PIMCO invites external analysts and scholars to share their expertise with us on financial and economic issues that are germane to the outlook. These external presentations combined with the firm’s internal research serve as background for further discussion and debate by the group.

Source: PIMCO. For illustrative purposes only.

The next step in the firm’s process is the analysis of cyclical or business cycle trends. PIMCO investment professionals meet three times a year in “Cyclical Forums” to evaluate growth and inflation over the business cycle horizon of the next six - twelve months. We evaluate, from a bottom-up perspective, the research and economic data from presentations by the firm's four regional portfolio committees Asia-Pacific Portfolio Committee (“APC”), the Europe Portfolio Committee (“EPC”), the Americas Portfolio Committee (“AmPC”), and the Emerging Markets Portfolio Committee (“EMPC”). These presentations are followed by discussion and debate, the purpose of which is to develop an outlook for each region over the cyclical horizon. The firm’s conclusions help refine and update forecasts for shorter-term economic trends.

Following the firm’s Secular and Cyclical Forums, the Investment Committee, comprised of senior portfolio managers and headed by PIMCO’s Group Chief Investment Officer and CIOs, works on a consensus basis to develop major strategies that serve as a model for all portfolios. The Investment Committee makes use of the top-down outlook provided by the Forums as well as bottom-up input from specialists who focus on various fixed income sectors and the regional portfolio committees. The Investment Committee sets targets for portfolio characteristics such as duration, yield curve exposure, convexity, sector concentration and credit quality and ensures themes are consistently applied across all portfolios. Additionally, the ESG research team provides periodic updates to the Investment Committee on ESG related themes from both a macro and portfolio perspective.

ESG Investment Process: Portfolios that follow Sustainability Strategies and Guidelines

As mentioned in the previous question, while material environmental, social, and governance considerations are incorporated into PIMCO’s broad investment processes, the Fund utilizes three building blocks of PIMCO’s ESG process – exclusions, evaluations, and engagement:

• Exclude: In the case of PIMCO sponsored funds that follow sustainability strategies and guidelines, we exclude issuers determined by PIMCO to be fundamentally misaligned with sustainability practices, including issuers focused on tobacco manufacturing, the production of controversial weapons, pornographic material and the production or distribution of coal. These core exclusions are supplemented by sovereign exclusions and a dynamic list of issuers excluded, for example, due to business practices determined in PIMCO’s judgment to be misaligned with relevant sustainable investment guidelines and restrictions and/or a failure to demonstrate a willingness to improve practices or unresponsiveness to PIMCO’s active engagement efforts. Issuers that do not meet relevant investment guidelines and restrictions are coded into our in-house compliance system, and portfolio managers, account managers, and our compliance teams closely monitor accounts to ensure compliance with applicable requirements.
• Evaluate: As well as seeking to exclude issuers lagging on ESG/sustainability progress, PIMCO portfolios that follow sustainability strategies and guidelines emphasize issuers with leading ESG practices or those who are progressing toward their ESG objectives in portfolio construction. These are identified through a proprietary ESG scoring system, which considers how an issuer currently fares relative to its peers in the industry, and the issuer’s ESG momentum. The result of this is that issuers already incorporating sound ESG practices are more likely to be candidates for our portfolios that follow sustainability strategies and guidelines.
• Engage: Our final building block is constructive and collaborative engagement with issuers to influence ESG practices over time. We believe that allocating capital toward issuers willing to improve the sustainability of their business practices has the potential to benefit a strategy’s investment outcomes rather than simply excluding issuers with poor sustainability metrics and favoring those with strong metrics. As such, PIMCO portfolios that follow sustainability strategies and guidelines seek to overweight issuers that demonstrate a clear willingness to move toward better ESG-related practices, consistent with meeting the SDGs.

ESG Exclusions

Please refer to the below for an overview of our exclusions criteria for the Fund. Moreover, the Fund may invest in index derivatives, such as credit default swap indices, which may provide indirect exposure to excluded issuers as outlined herein.

• Sovereigns - Excludes sovereigns that rank poorly in transparency and corruption indices including Transparency International and World Bank.
• Global norms - Excludes issuers in violation of UN Global Compact Principles and UN Guiding Principles of Business and Human Rights.
• Weapons - Excludes issuers principally engaged in the manufacture of ‘military equipment’ as defined below:
  • Controversial weapons: The Fund excludes companies involved in the production or manufacturing of controversial weapons such as biological weapons, cluster munitions, and landmines.
  • Conventional weapons: The Fund excludes companies that manufacture conventional weapons. The exclusion restricts companies that produce weapons systems, components, and support systems and services.
  • Nuclear weapons: Lastly, the Fund excludes companies that produce or manufacture delivery platforms, support systems, and other components for nuclear weapons.
• Adult entertainment - Excludes any issuer principally engaged in the production or trade of pornographic materials.
• Alcohol - Excludes any issuer principally engaged in the production of alcoholic beverages.
• Gambling - Excludes any issuer principally engaged in the operation of gambling casinos.
• Fossil fuels - Excludes businesses that are principally engaged in the generation of energy from thermal coal as well as thermal coal mining. We also exclude businesses involved in oil extraction and production and oil sands. We further exclude other businesses involved in oil-related activities. However, ESG Fixed Income Securities (as further described in the section of the Prospectus entitled “ESG Fixed Income Securities”) from issuers involved in fossil fuel related sectors as described above, may be permitted.
• Tobacco - Excludes issuers principally engaged in the manufacture of tobacco.

Please consider the above information as confidential. The above list should not be considered as exhaustive and might be subject to change.

PIMCO’s proprietary ESG assessments across asset classes

PIMCO has developed proprietary scoring frameworks across asset classes over the past decade. Our enhanced research process incorporates a detailed ESG asset assessment that complements the traditional ratings assigned by analysts. We have proprietary ESG scores for corporate issuers, sovereigns, securitized issuers and municipal issuers, in addition to PIMCO’s proprietary ESG labeled bond scoring framework to evaluate green, social and sustainability bond issuances.

Provided below are details on how PIMCO incorporates ESG into different asset types.

1. ESG Investing in Corporates

PIMCO’s team of credit research analysts generally assess the ESG profile of the issuers that they cover relative to peers with a goal of separating leading issuers from issuers who are not as advanced on their sustainability journey. Using industry-specific frameworks, analysts review their companies’ ESG performance based on information available in public filings, recent news and controversies, as well as through regular engagement with company management teams to assign separate scores for “E”, “S”, and “G.” In determining the efficacy of an issuer’s ESG practices, PIMCO will use its own proprietary assessments of material ESG issues. In the end, PIMCO’s resulting assessments are proprietary and distinct from those provided by ESG rating providers. To facilitate the 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.

As illustrated below, scores seek to distinguish between “Leading Practice” issuers and those that raise “Significant Concerns.” They also include a forward-looking ESG trend assessment, which recognizes companies whose ESG performance is significantly improving or deteriorating.

Source: PIMCO. For Illustrative Purposes only.

These factors are combined to create a proprietary ESG score in which the relative weighting of the E, S, and G pillars, and the trend assessment, is based on the company’s business profile and differences in industry dynamics. For example, the environmental pillar has the highest weight for issuers in extractive industries (e.g. oil, gas and mining), the social pillar has the highest weight for pharmaceutical issuers, and the governance pillar has the highest weight for financial issuers. As the ESG landscape has evolved over time, the investment team continues to evolve and refine this approach accordingly.

Since 2016, PIMCO credit research analysts have scored over 4,000 parent issuers on ESG performance. ESG issues are highlighted in their credit research notes, alongside PIMCO’s internal credit ratings and recommendations for portfolio managers to consider when they are evaluating investments for all PIMCO portfolios, including accounts that do not follow sustainability strategies and guidelines. ESG scores are updated regularly whenever relevant new information becomes available.

ESG data and analysis, both internal and external, are available to all portfolio managers, traders and research analysts across the firm.

2. ESG Investing in Sovereign Debt Markets

PIMCO’s in-depth, bottom-up sovereign risk analysis assesses financial, macroeconomic and ESG variables. ESG criteria have been an integral part of PIMCO’s sovereign ratings analysis since 2011 when we explicitly included variables that measure ESG factors into the PIMCO sovereign ratings model.

More recently, we have developed a standalone ESG scoring framework that both provides valuable input into our sovereign risk scenario assessments and serves as an input for relative value decisions in portfolios that follow sustainability strategies and guidelines. In addition to the traditional financial metrics used in sovereign credit analysis, we explicitly score the sovereign on each ESG component and compile a combined sovereign ESG score as shown in the following graphic:

Source: PIMCO. For Illustrative Purposes only.

3. ESG Investing in Structured Products

Agency and non-Agency MBS

With PIMCO’s access to vast loan-level mortgage data, we developed a proprietary responsible investing scoring model for mortgages, based on a scale from 1 (weakest) to 5 (best), consistent with other PIMCO ESG scoring frameworks used for corporate credits, sovereigns and others.
PIMCO’s philosophy of responsible mortgage investing focuses on four objectives:

• Support homeownership. Homeownership is a key path to savings and wealth building for many across the world. Connecting borrowers with capital markets is an established and efficient way to ease the path to homeownership. Not all mortgages are used for homeownership; some mortgages are used for vacation home purchases or investment properties.
• Increase access for underserved communities. PIMCO believes a focus on underserved communities and lower income borrowers is a way to magnify the social benefit of home lending without sacrificing on loan quality.
• Promote responsible lending. It is critical to focus on ensuring borrowers are not put at added risk of financial distress due to burdensome debt loads.
• Discourage predatory lending. A governance-focused way to encourage good lending practices is to penalize or exclude lenders and servicers who engage in practices that are detrimental to homeowners (and in many cases detrimental to bondholders as well).

The mortgage market is not homogenous; there are agency mortgages and non-agency residential mortgages. We have built analytical frameworks for each part of the market.

For agency mortgage-backed securities (MBS), our ESG research model is based on pool-level characteristics and data we have collected over decades of studying mortgages. For non-government-guaranteed mortgages (non-agency MBS), our quantitative analysis is loan-level-based and again draws on a huge set of data PIMCO’s mortgage team has gathered since before the financial crisis.

Commercial Mortgage Backed Securities

In order to analyze Agency and Non-Agency CMBS, PIMCO developed a framework with a focus on Environmental criteria, specifically on industry standard Silver / Gold / Platinum LEED and Green certifications on properties to differentiate sustainably built structures. From a Social standpoint, analysts have been evaluating the health and safety measures  taken post-COVID for the tenants, and from the Governance side, we are looking at the underlying ESG scores of the owners of the building.

Similar to the residential side, green securitizations remain a small part of the market issue by Fannie Mae and Freddie Mac. However, in their annual outlooks, there is an explicit shift to target more green loans, and so we expect Green labeled Agency CMBS to be a growing marketing going forward. We also look to promote underserved communities and affordable lending, such as through low-income multifamily loans issued by Fannie Mae and Freddie Mac.

Asset Backed Securities

Given the heterogeneous nature of ABS, we have developed a framework to make sure we are approaching analysis in the same manner across various ABS subsectors. PIMCO’s proprietary framework focuses on each pillar of E/S/G, leveraging the Social framework constructed for Non-Agency MBS and expanding upon it with the addition of Environmental and Governance criteria.

For the Environmental criteria, our framework emphasizes ABS that are promoting investment in renewable energy production, storage, and utilization. We look to capture the positive impact of electric vehicles, solar panels, power storage, and other green energy focused endeavors. On the Social side, our goal is to improve affordability and home ownership through responsible lending. We look to encourage responsible lending to consumers and small businesses, and identify and limit investment in predatory lending practices. Lastly, for Governance, we aim to avoid those with high risk servicer behavior such as recent servicer headline risk.

Collateralized Loan Obligations

For PIMCO’s CLO analysis, our analysts map existing loan-level ESG scoring to CLO collateral to produce CLO trust-level scoring. We supplement loan scoring with sector scoring for unscored CLO holdings. Here, we look to leverage the bottom-up ESG research of PIMCO credit research analysts and the bank loan team to evaluate each loan collateralizing the transaction on all three metrics (E/S/G). With this loan-level analysis, PIMCO discourages overly-aggressive management and non-transparent structures when selecting what will be included in a portfolio that follows sustainability strategies and guidelines. Further, as CLOs are not a static pool of loans, we continue to monitor the underlying loans over time and are working to create pools that have positive ESG scores and stay that way.

4. ESG Labeled Bond Scoring Framework

ESG labeled bonds, including green, social, and sustainability bonds, need to fit PIMCO’s credit selection and portfolio construction process of top-down drivers (sector and regional selection, expectations on global growth and technical factors), bottom-up drivers (credit strength, business model, covenants etc.) and valuation to qualify for investment. ESG Bonds refer to green, social, sustainability or sustainability linked bonds based on issuer as explained by the issuer through use of a framework and/or legal documentation. Labeled bonds are often verified by a third party that certified the bond will fund projects with eligible benefits or includes sustainability-linked covenants. Green Bonds are any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible Green Projects. Social Bonds are use-of-proceeds bonds earmarked to finance new and existing projects or activities with positive social impacts. Sustainability Bonds are use-of-proceeds bonds earmarked to finance new and existing projects or activities with positive environmental and social impacts. Sustainability-Linked Bonds (SLBs) are structurally linked to the issuer’s achievement of climate or broader sustainability goals, such as through a step-up in coupon if key performance indicators (KPIs) are not met. We look to invest in ESG labeled bonds that have attractive valuations that are in line to comparable (by coupon, maturity, seniority etc.) non-ESG bonds issued by the same company, given the strong focus on environmental sustainability objectives. We assess sustainable bond instruments both prior to and after issuance, mapping them across a spectrum based on strategic fit, potential impact, red flags, and reporting, resulting in PIMCO’s score for ESG bonds. PIMCO’s ESG labeled bond scores aid the investment process and security selection, allowing for stronger differentiation among sustainable bond issuers and frameworks.

The following graphic demonstrates our proprietary framework that assesses Green / Social / Sustainability instruments both prior to and after issuance, mapping them across a spectrum based on strategic fit, potential impact, red flags and reporting, resulting in PIMCO’s proprietary score for green, social, sustainability or sustainability-linked bonds.

SOURCE: PIMCO. For illustrative purposes only

1 UN Sustainable Development Goals
2 Greenhouse gas emissions

Building off PIMCO’s standard issuer-level ESG score, which incorporates a peer assessment and trend analysis, PIMCO’s ESG bond score contributes a positive adjustment to the issuer ESG score for a potentially higher PIMCO ESG score. The magnitude of the adjustment is dependent on the quality of the ESG bond per PIMCO’s proprietary ESG Bond Framework assessment, detailed above. The below illustrates how ESG bonds are incorporated into PIMCO’s proprietary ESG scores.

Engagement

As a leading fixed income manager, PIMCO has the scale and access to engage issuers on matters that we believe are essential when pursuing compelling risk-adjusted returns. We believe PIMCO’s size, history, and involvement across industry initiatives, provides a platform to engage with issuers all who are both leading and continuing to evolve in their approach to sustainability. This extends beyond corporates, into structured credit, sovereigns, municipals, and alternatives, where applicable.

PIMCO aims to work across the variety of market participants seeking a more resilient and sustainable future. We use our platform to collaborate with civil society, multilateral organizations, academic researchers and scientific and policy experts. We view these forums as important areas of dialogue and industry innovation as we face secular shifts globally. These multifaceted efforts provide a distinctive market perspective that is unique to PIMCO.

We view our relationships with issuers as partnerships, and pursue outcomes which ultimately seek to benefit our clients through risk mitigation or performance improvement at the Issuer. We believe that working with issuers to support enhancing their operational practices and address negative externalities can have a significant impact – especially for issuers with higher exposure to ESG related risks.

At PIMCO, the purpose of our engagement is to gain investment insights and pursue outcomes aimed at reducing risks and/or generating opportunities, ultimately for the benefit of our clients. We prioritize issuers across the platform where we have meaningful financial and ESG risk exposure, focusing on what we believe to be material topics.

We believe that active management can greatly benefit from engagement, particularly when it comes to mitigating potential regulatory and long-term ESG risks. By offering best practices for issuers to consider, we aim to enhance their risk management strategies and strive to increase their competitive advantage, strengthen their credibility through increased transparency, and avoid potential controversies. We hold the view that consistent issuer engagement is essential for a thorough understanding of the investment’s risk-reward scenario, which is critical to making informed buy or sell decisions.

In terms of our approach: our engagement is designed to leverage the full scale of our global team of 80+ credit research analysts and build upon our firm's decades of experience working constructively with issuers. Our engagement structure is built on two key mechanisms: bilateral engagement and collaborative engagement.

Our bilateral engagements, conducted by our credit research analysts, portfolio managers, and ESG analysts, allow us to address ESG risks platform wide. We remain guided by three key principles:

• Think like a treasurer: We seek to identify issuers which can benefit from engagement, then develop a set of core engagement objectives tailored to each issuer.
• Engage like a partner: We believe that successful bondholder engagement is based on collaboration, productive dialogue and mutual agreement on objectives.
• Hold to account as a lender: Our engagement process measures progress against an issuer’s stated target or industry benchmarks. At the outset of the process, we determine appropriate remedies if underperformance is material and are willing to divest if necessary.

PIMCO’s ESG analyst team leads our engagement efforts, in coordination with the broader credit research team. Members of the ESG analyst team include Grover Burthey, Head of ESG Portfolio Management and the ESG analyst team, Samuel Mary, ESG integration analyst and climate specialist, and Meredith Block, ESG research analyst. Our goal is to holistically integrate engagement activity into the ongoing discussions led by our credit research and portfolio management teams while broadening the scope of questions beyond credit-specific considerations to include sustainability concerns as well.

In this regard, engagement at PIMCO is designed to leverage the full scale of our global team of credit research analysts and build upon our firm’s decades of experience working collaboratively with issuers to encourage business practices which are favorable to our investment objectives.

Resources, Affiliations & Corporate Strategies:

Dedicated Sustainability Teammates 

PIMCO’s sustainability platform leverages the broader team of portfolio managers, credit research analysts, product strategists, legal, compliance and executive management resources with ESG responsibilities comprising over 180 individuals, reflecting the broad integration of ESG into our firm and processes. Furthermore, PIMCO has 60+ ESG resources with core responsibilities for ESG products, research, engagement and technology in support of PIMCO’s dedicated sustainability platform. 

Engagement

At a firm-wide level, PIMCO’s global credit research analysts and portfolio managers spend a significant amount of time conducting calls and in-person meetings with issuers’ senior management. In addition to financial matters, they also address material sustainability issues such as conduct and culture, product safety and carbon emissions. We have found this regular dialogue across multiple touchpoints to be a highly effective method of communicating and engaging on sustainability issues.

PIMCO's ESG credit research team leads our sustainability engagement efforts, in coordination with the broader over 80 member credit research team. Our ESG credit research analyst team regularly engages with issuers on material sustainability topics including climate change and related sustainability targets, human capital management, SDG-alignment and best practices in Green/Social and Sustainability bond issuance while our broader credit research analyst team engages with the issuers they cover on sustainability topics that have the potential to impact fundamental credit performance in the near term. Our goal is to integrate engagement activities holistically into the ongoing discussions led by our credit research and portfolio management teams where appropriate, broadening the scope of questions beyond credit-specific considerations to include sustainability concerns. Engagement at PIMCO is designed to leverage the full scale of our global team of credit research analysts and build upon our firm's decades of experience working collaboratively with issuers.

ESG Information Technology

Access to high-quality data historically has been one of the biggest challenges to sustainable investing. While financial statements have been ubiquitous for decades, high-quality ESG data is only just now being reported by the largest companies. Unlike rules-based GAAP and IFRS financial statements, ESG data is often qualitative and often not comparable (or simply not reported) across issuers.

That said, the volume, quality and comparability of ESG data has improved rapidly in recent years, and PIMCO has been investing in the team and the technology to incorporate this nascent ESG data into our investment process. Technology is critical to analyse, synthesize and act on this ESG data, so we have built a dedicated team of ESG technology developers who work with portfolio managers to deliver robust solutions that integrate ESG information throughout our investment process. These developers are adept at understanding the nuances of both ESG data and corporate credit capital structures.

The ESG technology team has developed a process to solve the unique data and reporting challenges of fixed income investing. The process utilizes curated data from third party providers, augmented with our own credit and ESG analysis, particularly in a case where ESG information from the data providers is missing or incomplete, which is often the case for private, high yield and emerging market issuers. Our independent analysis often provides a differentiated ESG view among corporate subsidiaries, in turn enabling us to invest in (or avoid) issuers that may have dramatically different ESG profiles than their corporate parent.

This technology process also enables our portfolio management and compliance teams to track the business involvement of corporate, sovereign and municipal issuers to ensure that issuers that do not align with criteria established by PIMCO are not available to portfolios with specific exclusion thresholds.

For further information on our sustainability team and investment process, please refer to the latest PIMCO Sustainable Investing Report available on PIMCO’s website via the following link (PIMCO Sustainable Investing Report / PIMCO Sustainable Investing Report).

ESG Technology Systems

In recent years, ESG data has improved rapidly as stakeholders across the globe push companies to disclose more sustainability information. More disclosure will improve ESG-related investment decision-making and support regulatory compliance initiatives. PIMCO has been investing in the team and technology to incorporate ESG data into our investment process for many years. One key area of focus for us has been the integration of climate-related information in our investment process. Our dedicated ESG technology team has developed tools to enable portfolio managers across the firm to integrate third-party data and proprietary ESG data into our overall investment process where relevant.

Dialshifter

This fund is helping to ‘shift the dial from brown to green’ by…

… PIMCO has a published Sustainable Investment Policy Statement that details PIMCO’s commitments to: the integration of ESG factors broadly into our research process, sustainable investment solutions offered to our clients, our engagement with issuers on sustainability factors, and the evaluation of climate change and related risks in our investment analysis. PIMCO formalized our Sustainable Investment Policy Statement originally in 2012 with continuous enhancements and evolutions over the years.

SDR Labelling:

Not eligible to use label (out of scope)