Manulife Investment Management Manulife Investment Management

Driving positive change
while capturing investment opportunities

Sustainable investing in Asia is taking off in a big way. As an astute investor, are you ready to create a positive impact on the world with your investments?

What is sustainable investing?

Sustainable investing is the integration of Environmental, Social and Governance (ESG) factors into the selection and management of investments. The increased focus on ESG issues by regulators and companies are driving Asia’s economic and social development. You too can play a part, while capturing opportunities from these developments.

Environmental

How a company’s operations affect the natural environment and vice versa.

What are the key environmental concerns to be aware of?

  • Climate change
  • Carbon emissions
  • Air and water pollution
  • Natural resources
  • Water scarcity
  • Renewable energy

Social

The relationship between a company and its employees, suppliers and communities.

What are the important social issues to manage?

  • Human capital
  • Labour standards
  • Product liability
  • Gender and diversity
  • Privacy and data security
  • Stakeholder opposition

Governance

The systems a company has put in place to ensure sustainable corporate practices.

Are the interests of all stakeholders taken care of?

  • Board composition
  • Executive compensation
  • Accounting practices
  • Corruption
  • Business ethics and fraud

Sources: Manulife Investment Management, MSCI ESG Investing and MSCI ESG Research. Selective ESG issues for illustrative purposes only, this is not a full list.

Why sustainable investing in Asia?

Home to 60% of the world’s population1, Asia is responsible for half of global carbon emissions2. With the growing pressure on Asia to tackle pressing environmental challenges and recover from the pandemic with targeted social and other sustainability measures, it’s time to capture the exciting investment opportunities ahead.

Three rising themes in Asia to look out for

Environmental

Climate change is inevitable – but is it all doom from here?

Social

Aging Asia – who are the winners?

Governance

How does an exemplary company stand out?

How to drive
positive change in the world?

Combining sustainable investing with fixed income

Investors, businesses, and consumers are becoming more aware that they can play an important role in ESG while still meeting their financial goals, fueling the demand for sustainable investments. Investors are beginning to recognise the benefits of Asian credits and that sustainable investments have historically outperformed over the medium to longer term.3

The global issuance of sustainable debt (green, social, and sustainability bonds) increased by US$660 billion in the first half of 20214, with Asian issuers accounting for nearly 17% and expanding at a rate that could surpass the annual amount of US$770 billion in 2020.

However, it is vital to remember that not all sustainable bonds are equal. Investors will ultimately need to undertake robust analysis or engage research expertise to avoid risks like greenwashing and that’s why active managers who take a holistic approach can help investors navigate the best opportunities.

Sustainable debt issuance per region
(Annual, US$ billion)

Source: Bloomberg New Energy Finance, Sustainable Finance Market Outlook Data Set, as of June 2021. Data updated half yearly.

A holistic approach to sustainable investing5

We believe that sustainable investing goes beyond meeting ESG criteria. Our sustainable bond strategy encompasses a holistic approach that leverages our local expertise, on-the-ground research, extensive company engagements and investment capabilities to help investors avoid ESG-related and company-specific risks, and to encourage debt issuers, entities, and stakeholders to embrace sustainability best practices.

Normative
screening
Header 1

Normative screening

Start by applying a normative screening:

  • Avoid negative impact by actively excluding controversial sectors (i.e. alcohol, tobacco, gaming, adult entertainment, thermal coal involvement, and weapons), organisations and UN Compact violators.

Industry breakdown (%) of Manulife Global Fund — Sustainable Asia Bond Fund

Source: Manulife Investment Management, data as of 30 June 2021. JESG JACI: JP Morgan ESG Asia Credit Index, JACI: JPMorgan Asia Credit Index.

ESG
integration
2

ESG integration

Incorporate ESG considerations

  • Fully incorporate ESG factors into our market assessments, top-down forecasts, bottom-up research and risk management.
  • ESG scorecards are used to increase transparency on how our credit analysts capture ESG risks (and quantify risks) when assessing a company’s credit worthiness.

Illustration of Manulife IM Asian credit issuers’ ESG scorecard

For illustrative purposes only.

Positive
tilts
3

Positive tilts

Use positive tilts for further screening

  • Under a comprehensive ESG framework, Manulife IM Asia Credit Committee conducts deeper analysis to identify leading, best-in-class6 issuers with lower ESG risks, solid track records and forward-looking stances.
  • 48 issuers of the JESG JACI universe were rejected due to ESG concerns.

Asian credits are screened using a comprehensive ESG framework

For illustrative purposes only. Source: Manulife Investment Management, JPMorgan ESG Asia Credit Index (JESG JACI), as of 30 June 2021. * The figure 239 reflects the number of Asian credit issuers approved by Manulife IM Asia Credit Committee.

ESG
themed
bonds
4

ESG themed bonds

Select ESG themed bond

  • Committed to being a “true-to-label” ESG fixed-income strategy.
  • Minimum 15% (currently 34%7, the rest are select issuers with strong sustainable attributes and aiming to outperform traditional Asian bond peers) exposure to ESG themed bond that are dedicated to environmental, social and/or sustainability projects.
  • Support market innovation in new KPI-linked, transition, and blue bonds.

Manulife Global Fund — Sustainable Asia Bond Fund’s ESG bond exposure since inception

Source: Manulife Investment Management, as of 30 June 2021.

Active
stewardship
5

Active stewardship

How and why we engage with companies

Why we engage:

  • Value creation: Engage with companies that are outcome-oriented to support long-term returns and mitigate risks.
  • Due diligence: Evaluate ESG factors to form better investment decisions and insights into company’s management and performance.

Stewardship

  • Collaborate with industry and regulatory groups to support long-term interests of our clients’ capital and resilient capital markets.

How we engage:

  • Engage with all strategy companies at least once a year.
  • A “milestone system” to measure progress in company engagements.
  • Collaborate in industry initiatives such as Climate Action 100+ and UN PRI working groups.
Positive
impact
6

Positive impact

Three overarching strategy themes:

I. Climate change mitigation

  • Target a minimum 15% exposure to dedicated “green” bonds that are best-in-class6.
  • Engage with companies working towards a low carbon transition.

Environmental theme: provision of clean energy and low carbon emissions to mitigate climate change

Carbon intensity
(Tons CO2e / $M revenues)*

Source: Manulife Investment Management, JPMorgan indices, 30 June 2021.

II. Aging population support

  • Aim to maintain an overweight exposure to dedicated “social” bonds.
  • Identify best-in-class6 companies that provide solutions for an aging population and the demographic shift.

Social theme: the provision of retirement solutions to Asia’s aging population

Companies offering retirement solutions
(% Exposure)

Source: Bloomberg, JPMorgan indices, Manulife Investment Management, Data based on weighted average percentage of corporate bonds universe for the Manulife Sustainable Asia Bond’s representative portfolio and JPMorgan indices. As of 30 June 2021.

III. Superior governance promotion

  • Focus on best-in-class6 companies with high quality governance structures and management.
  • Identify and engage with companies that strive for higher levels of gender diversity, independence, and best governance practices.

Governance theme: companies with strong corporate governance structures

Board & executive diversity and independence
(% Exposure)

Source: Manulife Investment Management, JPMorgan indices, 30 June 2021.

# The JPMorgan ESG Asia Credit Index (JESG JACI) tracks the total return performance of the Asia ex-Japan USD-denominated debt instruments across the Asian Fixed Income asset class, including floating, perpetual, and subordinated bonds issued by Sovereign, Quasi-Sovereign and Corporate entities. The index applies an Environmental, Social and Governance (ESG) scoring and screening methodology to tilt toward green bond issues or issuers ranked higher on ESG criteria, and to underweight or remove issuers that rank lower.

*Carbon intensity data sourced via Trucost ESG Analysis and Manulife IM. Carbon intensity refers to Scope 1 & 2 Tons CO2 equivalent emissions per million USD revenues. Definitions: “Scope 1” = All Direct Emissions from the activities of an organisation or under their control. Including fuel combustion on site such as gas boilers, fleet vehicles and air-conditioning leaks. “Scope 2” = Indirect Emissions from electricity purchased and used by the organisation. Emissions are created during the production of the energy and eventually used by the organisation.

Recognition for our sustainable investing capabilities

A+

Received an A+ from UN PRI for ESG strategy and governance, and integration in listed equity and fixed income SSA (sovereign, supranational, and agency debt)8

PRI Leader’s
Group 2020

Named to PRI Leaders’ Group 2020 for excellence in climate reporting9

Savvy Investor
Awards 2020

Savvy Investor Awards 2020 for The Best Emerging Markets Paper (Highly Commended): “ESG investing in Asia—an invisible evolution”

Learn more:
View fund brochure

1 HYDE Database 2016 & UN World Population Prospects 2019.
2 BP Statistical Review of World Energy 2019.
3 Source: Morningstar “Do Sustainable Funds Beat their Rivals?”, 16 June 2020.
4 Source: Bloomberg New Energy Finance, Sustainable Finance Market Outlook Data Set, as of June 2021. Data updated half yearly.
5 We consider that the integration of sustainability risks in the decision-making process is an important element in determining long-term performance outcomes and is an effective risk mitigation technique. Our approach to sustainability provides a flexible framework that supports implementation across different asset classes and investment teams. While we believe that sustainable investing will lead to better long-term investment outcomes, there is no guarantee that sustainable investing will ensure better returns in the longer term. In particular, by limiting the range of investable assets through the exclusionary framework, positive screening and thematic investment, we may forego the opportunity to invest in an investment which we otherwise believe likely to outperform over time.
6 “Best-in-class” ESG is industry terminology referring to an investment approach that selects companies that are leaders from an ESG perspective.
7 Our commitment to ESG bonds: We are committed to a “true-to-label” ESG fixed-income strategy. We show this in two ways. First, the strategy is benchmarked to the JESG JACI, which tracks Asian issuers with strong ESG practices. We utilise normative and positive screens as tools in our process. Ultimately, we are focused on achieving positive ESG outcomes. Second, we have voluntarily established a minimum threshold, whereby 15% of the SAB strategy’s invested capital must be in ESG-related bonds. We also review all ESG and green bonds to ensure that they are true to the label. This commitment is essential, as investors need to be careful of ESG-related strategies that potentially invest in corporate or sovereign bonds that overpromise (known as “greenwashing”) to boost yield or strategy performance.
8 Based on 2020 PRI report. For more information on PRI’s methodology and for Manulife IM's full PRI assessment and transparency report please see: https://www.manulifeim.com/institutional/global/en/sri-report.
9 Most recent PRI Leaders’ Group. PRI has announced that the 2021 PRI Leaders’ Group on Stewardship has been postponed.