Property debentures engagement – bespoke ESG analysis to enhance our risk identification

The commercial real estate sector is seeing strong momentum towards better climate practices.

• Commercial real estate is a prime example of how any perceived distinction between credit analysis and ESG analysis is becoming increasingly invalid
• We conducted an environmental engagement project to understand the net zero transition impact on secured property debentures issuers. Although our typical Sterling Credit portfolios do not target a specific ESG or climate outcome, and different portfolios will have differing bond weightings to reflect their investment objectives, such bespoke ESG analysis allows us to enhance our risk identification and evaluation – with the greater understanding of issuers’ credentials informing our assessment of cash flows and collateral values
• We are pleased with the attention placed by our borrowers on sustainability and net zero more specifically, with the companies that more materially depend on strong environmental credentials taking the strongest actions
• We obtained a clearer picture of where each of our borrowers stand on the journey to net zero, as well as the quality of the assets that we are secured upon, enabling us to integrate transition preparedness into the evaluation of balance sheet sustainability
• We will continue working with the laggards, pushing them to improve their practices and better align to the expectations we have on material issues

Read in full: Property Debentures – Environmental Engagement Project 2023

This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.