Fixed income giant PIMCO backs ESG to increase long-term portfolio quality

$1.3trn fund firm explains rationale for signing up to UN PRI

PIMCO, the $1.3trn (€1trn) fixed income giant, has outlined its reasons for signing up to the UN Principles for Responsible Investment – explaining that environmental, social and governance (ESG) factors should improve the long-term quality of investments.

PIMCO signed up to the PRI last September amid a trend for major asset management firms to back the six year-old initiative, which now has 983 signatories.

Goldman Sachs Asset Management, for example, signed up late last year, as exclusively revealed by Responsible Investor.

Now PIMCO has explained its thinking in greater detail.

“As a firm,” it says, “we believe that ESG integration goes hand in hand with our objective to achieve solid financial returns while at the same time managing risk and taking into account companies’ ESG “performance.” Corruption and climate change are cited as examples of challenges which may hinder long-term returns.
“Thus, investing in companies working actively to reduce environmental, social and governance risks or engaging companies we invest in to do more with respect to ESG, may help to reduce the risk of negative surprises and increase the long-term quality of managed portfolios.”

The firm says it won’t label its strategies as ESG but instead will focus on considering ESG-related issues in its investment process and throughout the organisation. It has an existing “Sustainable and Responsible Investing” (SRI) project with Norway’s Storebrand.
“It is not our aim to develop or label strategies as ESG specifically,” PIMCO says.The firm, which is owned by German insurance giant Allianz, has formed a high level ESG Working Group headed by Tammie Arnold, who is head of the global Advisory business and a member of PIMCO’s Global Executive Committee.

The decision to become a PRI signatory comes from “the very top”, with backing from CEO and co-chief investment officer Mohamed El-Erian. Indeed, El-Erian has been a notable commentator on the future of capitalism, for example as part of the Financial Times’ current ‘Capitalism in Crisis’ series.

ESG goes hand in hand with our objective to achieve solid financial returns”

In a sign that other major fund firms are embracing ESG issues, BlackRock Chief Executive Larry Fink last week wrote to 600 of the firm’s largest investee companies. He said the firm, which has $3.5trn in assets under management, “seeks to engage in dialogue” with management ahead of the shareholder meeting season. And rival Fidelity has put forward some innovative proposals in the executive pay debate in the UK.

PIMCO argues that anticipating and understanding ESG dynamics is part of a “robust” investment process. So taking ESG factors into account “should ultimately enhance our efforts in achieving attractive risk-adjusted and sustainable investment performance over the long term”. Link