SSGA's Fixed Income Stewardship Program
The Need for FI Stewardship
Traditionally equity investors, as owners of companies, have taken the lead on environmental, social and governance (“ESG”) stewardship since they are directly impacted by the failure to manage or mitigate corporate governance and sustainability-related risk inherent to a business. In addition, proxy voting at shareholder meetings provides equity owners the leverage needed to engage with companies on a host of matters that range from long-term strategy to environmental management practices.
Without an annual vote, creditors have limited ability to engage and influence management behavior. Their relationship with issuers is largely contractual. Consequently, debt issuers have typically focused their engagement efforts on matters that directly influence their returns such as strategy, cash flow generation and utilization, and financial leverage. However, ESG risks can also impact returns on fixed income assets.1 These risks need to be managed and addressed in fixed income stewardship programs of asset managers.
While State Street Global Advisors (SSGA) has provided active ESG stewardship for our equity holdings for a number of years, in 2015, SSGA formally integrated ESG stewardship in its fixed income investment process.
SSGA’s Approach to FI Stewardship
The unique characteristics of different fixed income asset classes require different stewardship approaches. Therefore, SSGA will be developing and rolling out its FI stewardship program in a phased manner. Recognizing that there are significant crossovers between ESG stewardship as it relates to equities and corporate bonds2, in the first phase, SSGA has developed a FI stewardship program that focuses primarily on corporate debt. This allows SSGA to leverage its expertise from its equity stewardship program and extend it to its fixed income stewardship program. Further, given SSGA’s risk-based approach to stewardship, we have chosen to initially focus our stewardship efforts on an asset class that accounts for over 65% of SSGA’s FI AUM. Within the corporate debt universe, our program is differentiated by investment grade (“IG”) and high-yield (“HY”) corporate debt as it relates to the screening process adopted to identify companies for ESG engagement (see Issuer Engagement below).