We take our responsibility as investors seriously and are committed to integrating sustainable analysis into our investment process.
Executive Summary
Wider Engagement Lens Deepens Examination of Material ESG Risks
We broadened our engagement efforts in 2022. Our 2022 Issuer Engagement Report documents our exploration of a wider range of environmental, social and governance (ESG) risks with security issuers.
In 2021, the UN Climate Change Conference COP26 and the Intergovernmental Panel on Climate Change report focused the world's attention and our engagement efforts on climate risks. We shared our learnings in our 2021 Issuer Engagement Report about issuers preparation for, mitigation of, and adaptation to climate risks.
To be sure, climate risk was a top 2022 issuer engagement theme. Climate change risk extends across municipal, corporate, and securitized bond sectors. Our 2022 climate-related engagements targeted sea level rise, Scope 1, 2, and 3 greenhouse gas (GHG) emissions,1 and a low- or net zero carbon economic transition.
Our wider 2022 lens focused also on business risks for corporate and municipal bond issuers associated with data privacy, water consumption, financial inclusion, cybersecurity, and public-school enrollment trends. We believe these and many other factors within ESG’s broad purview are material risks.
Material risks are those that have enough significance or relevance to have a tangible impact on an investment. Various ESG factors may express greater or lesser materiality in different sectors. For instance, high carbon emissions and environmental liabilities potentially can be more material in the energy sector, while access to healthcare and product quality and safety may be more pertinent in the pharmaceuticals sector.
The Sustainability Accounting Standards Board (SASB), now merged with the International Financial Reporting Standards (IFRS) Foundation, stated that the materiality concept acknowledges that certain information may be more decision-useful to investors. We agree, with SASB's assessment. That is why we weigh materiality in our ESG analysis as well as the design and execution of our issuer engagement activities.
During 2022, our research team members held 131 direct engagement discussions with issuers and subject matter experts (SMEs) in 12 sectors across bond market sectors. Our engagement meetings were in addition to numerous interactions our analysts routinely have with issuers and SMEs in the conduct of new security research and ongoing bond surveillance, including regular quarterly earnings calls.
During 2022, some in government, business, and investing questioned the validity and value of ESG research in investing. In reviewing this report, it is worth reflecting on the number of engagement meetings our analysts took directly with issuers and the deeper examinations of a broad range of material investment risks that they conducted in these meetings. Their efforts help to highlight the validity of the ESG investing approach and deepen our conviction as to its value.
Finally, in 2022 Breckinridge established a Stewardship Committee to advance our ESG priorities and engagement efforts. This new ESG governance body has two initial responsibilities:
- Decide on investment-related requests to sign-on and/or publicly support external initiatives, letters, and statements related to material ESG issues; and
- Providing input on corporate engagement activities, when relevant.
The committee is largely comprised of members from our investment team as well as our consultant relations department, and reports to the firm’s Investment Committee.
[1] Scope 1 GHG emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions are indirect emissions not included in scope 2 that occur in the value chain of the reporting organization.
About Breckinridge
Boston-based asset manager Breckinridge Capital Advisors is independently owned and focuses on offering strategies that seek to generate income and preserve capital.
What Sets Us Apart:
- Independent Asset Manager
- Integrated Fundamental & ESG Research
- A Decade of Sustainability
- Strong belief in customized separate accounts
- Continuous emphasis on innovation
Working through a network of investment consultants and advisors, we serve a wide variety of clients ranging from high net worth individuals to large institutions. Breckinridge’s assets under management totaled more than $42 billion as of December 31, 2022.
Reflecting our commitment to ESG and sustainability, Breckinridge is a Massachusetts Benefit Corporation and a certified B Corp.2 We believe these designations help us in our goals to create positive, long-term impact for our clients, employees and the communities in which we live, work and invest.
[2] In order to achieve B Corp certification, a company must complete the B Impact Assessment and Disclosure Questionnaire and then get verified by an analyst from B Lab Global. B Corps must be recertified every three years and pay an annual fee. For more information, visit https://www.bcorporation.net/en-us/certification.
Breckinridge's ESG Approach
More than a decade ago, leveraging the capacity for self-determination that our independence affords us, we departed from the path most other asset managers were following and decided to fully integrate ESG research into our investment process.
Breckinridge believes that material ESG issues can identify long-term and idiosyncratic risks. ESG fits seamlessly with our investment philosophy, which holds that investors are well served by counterbalancing higher-risk assets with investment grade fixed income investments.
Our annual program of engagement with bond issuers is a component of our ESG research. Driven by our research teams, engagement meetings with issuers and SMEs are opportunities to:
- Gain a better understanding of the ESG profiles, material issues, opportunities, and risks of issuers, industries, or sectors.
- Provide an idea generation platform for our analysts; and
- Encourage the transparent reporting of material ESG issues, as we believe improved disclosure enhances our ESG analysis to the benefit of our clients.
We believe ESG factors can provide useful insights into the character and caliber of management. An important element of our ESG approach is an annual effort to actively engage with bond issuers and SMEs on material ESG risks.
Our engagement program is an important part of our ESG research process and our efforts to gain insights into material factors that we expect to take on greater importance in the future to advance the interests of sustainability across markets and the economy. We take our responsibility as investors seriously and are committed to integrating sustainable analysis into our investment process.
