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INTEGRATING ESG FACTORS INTO CREDIT RATINGS

As part of our investment risk analysis, we identify and assess ESG factors that could impact issuers’ long-term financial performance. Our methodology is inspired by reporting best practices such as the Global Reporting Initiative (GRI) and encompasses concepts such as materiality and industry-specific context (Sustainability Accounting Standards Board). The methodology is also based on a relative approach, where issuers within the same industry are evaluated against their peers based on criteria that vary according to each industry.

The Canadian Bond Index includes a significant proportion of private companies. Unlike publicly traded companies, private companies generally disclose less information, which can make it difficult to carry out a fair and consistent assessment of ESG factors. It is for this reason that we have introduced a disclosure score. This allows us to target issuers that do not offer adequate ESG reporting (< 75%), and to raise awareness on good disclosure practices.

 

ESG scores assigned to issuers are included into our Credit Quality ratings (CQ) and have a material impact on investment decisions (15 to 20% of the weighting depending on the industry). These  ratings help inform us of the credit spread required to be sufficiently compensated for the level of risk to which we are or would be exposed.

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STRATEGIES

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INTEGRATING CLIMATE RISKS

Climate Change Financial Reporting Working Group (CCFRWG)

AlphaFixe has been supporting the Task Force on Climate-Related Financial Disclosure (TCFD) recommendations since June 2018. The initiative aims to increase transparency on the consideration of climate risks and to increase market efficiency. As part of implementing the recommendations, AlphaFixe has developed an approach aimed at identifying

and managing climate-related risks. To Learn More

 

Net Zero Asset Managers (NZAM) initiative

As a signatory of the Net Zero Asset Managers (NZAM) initiative, AlphaFixe Capital has committed to achieve the following targets:

  • Our benchmark for 2050

Net-zero emissions for all our assets under management

 

  • Our benchmark for 2030

100% of our assets under management are aligning towards a net zero pathway by 2050

To measure progress and compliance with its 2030 target, AlphaFixe uses the International Energy Agency's NZE scenario and gives priority to issuers who validate their reduction target with SBTi. In 2022, 74% of our assets under management were aligned with reaching net-zero by 2050.

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ENGAGEMENT

Engagement is defined as any form of exchange with issuers aimed at improving practices related to ESG issues. AlphaFixe also collaborates with stakeholders such as clients/partners, investment advisors, service providers, peers and government agencies.

As an investment management company specializing in fixed income, AlphaFixe invests in debt securities which, by definition, carry no voting rights. However, nothing prevents us from engaging in a constructive dialogue with our stakeholders to raise awareness of sound ESG risk management. We therefore take every opportunity (private meetings, investor presentations, calls, conferences, etc.) to do so.

 

The fact that the Canadian bond index includes a large number of private companies means that we regularly engage in dialogue to raise their awareness of good ESG disclosure practices. What's more, all issuers with a disclosure score below 75% are asked to complete a customized ESG questionnaire every year.

 

NEGATIVE SCREENING

AlphaFixe excludes all investments in companies involved in gambling, weapons, alcohol, tobacco and cannabis production, as well as those using child labor. In addition, all companies which operate or engage in the exploration of proven or probable fossil fuel reserves are excluded from all client portfolios and pooled funds it manages.

IMPACT BONDS

Impact investing holds a significant place at AlphaFixe. Back in 2017, AlphaFixe set itself apart by launching the very first green bond fund managed in Canada. The AlphaFixe ESG - Green Bond Fund offers an innovative solution for the active management of green bonds, allowing investors to participate in the financing of a low-carbon economy without sacrificing yield. The fixed-income securities are intended, among other things, to finance greenhouse gas (GHG) emissions reduction or climate change adaptation projects.

Selected investments must meet the green bond selection criteria established by AlphaGreen proprietary validation process. These criteria are based on the Green Bond Principles and the Climate Bonds Taxonomy. AlphaFixe considers bonds labeled as such by the issuer, or those aligned with the fight against climate change, to be green when the issuer or the financed project generate revenues of which a minimum of 90% comes from activities that comply with the Climate Bonds Taxonomy. 

Since 2017, demand for impact bond strategies has only grown. This is reflected not only in the assets under management of the green bond fund, but also in the growing number of similar strategies developed by AlphaFixe. Among others, AlphaFixe manages impact strategies which, in addition to green bonds, include social and sustainability bonds. An assessment methodology has even been developed for transition bonds, a market that we hope will develop rapidly in Canada.

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