Sustainability Report 2023
www.rpia.ca
RPIA
Email Address: investors@rpia.ca
43 Hazelton Ave. Toronto, ON M5R 2E3
General Line: +1 647 776 1777
Investor Services: +1 647 776 2566
CONTENTS
OVERVIEW
4
Executive Summary
4
Industry & Community Commitments
5
OUR ROLE AS AN EMPLOYER: RPIA ‘ S EFFORTS ON SUSTAINABILITY 7
Supporting Our Employees
8
Engaging with Our Community
10
Our Diversity, Equity & Inclusion Journey
13
Measuring Our Climate Impact
16
OUR ROLE AS AN INVESTMENT MANAGER: SUSTAINABILITY & THE INVESTMENT PROCESS
18
Our ESG Integration Process
20
Stewardship
26
Thematic Portfolios: Fossil Fuel Exclusion Strategies
30
Thought Leadership
31
Task Force on Climate Related Financial Disclosure (TCFD) Report
32
RPIA SUSTAINABILITY REPORT 2023
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OVERVIEW
EXECUTIVE SUMMARY
RPIA is an investment management firm, independently owned by employees and specializing in global fixed income strategies. The firm was founded in 2009 by experienced investment professionals who have extensive international debt market expertise and over the past 14 years has grown to over 100 team members. At the end of 2023, RPIA was managing approximately $9 billion of assets for institutions, high-net-worth individuals, and investment advisors. As stewards of our investors’ capital, we believe sustainability considerations are a vital component of our investment philosophy and our business. In 2023, we refined and shaped our actions related to how we assess Environmental, Social, and Governance (ESG) factors and how they play a critical role in defining risk and opportunities - both for invested capital and for RPIA as a firm. In this 2023 Sustainability Report, we are proud to report on the enhancements and reinforced practices that are important to our role as an employer and our role as an asset manager.
Our Role as an Employer: RPIA’s Efforts on Sustainability
• Supporting Our Community and Our Industry: In addition to our charitable giving, we evolved the RPIA ACE Scholarship and Internship Program. • Continuing Our DEI Journey: We continue to foster and promote a diverse, equitable, and inclusive workplace. Dannielle Ullrich was appointed as the firm’s “DEI Lead.” • Climate Impact: We continue to track and manage our greenhouse gas (GHG) inventory and achieved BMO Radicle’s Climate Smart Certification for the second year in a row.
Our Role as an Investment Manager: Sustainability and The Investment Process
• ESG Integration: In 2023, we continued to consider and assess ESG risks and opportunities within our investment process. • ESG Stewardship: We identified numerous opportunities for engagement across sectors and geographies. • Governance & Oversight: Our approach to maintaining ownership and oversight of RPIA’s ESG practices includes efforts by the ESG Steering Committee, Investment Committee, and Risk Committee, supported by the firm’s Principals. We are proud of our progress, and eager for the future. If you would like to discuss our approach to sustainability within the firm and our investment process, please feel free to contact us at investors@rpia.ca.
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OVERVIEW
INDUSTRY & COMMUNITY COMMITMENTS
We value the opportunity to support and formally commit to organizations that align with our goals and provide forums for thoughtful discussions on evolving topics and initiatives. We seek to identify industry organizations that provide our firm and employees the opportunity to amplify our voice through collaborative action. We are proud to be members of:
Standards & Regulations
UN Principals for Responsible Investing
FSB Task Force on Climate-related Financial Disclosures*
The Sustainability Accounting Standards Board
Canadian Coalition for Good Governance
Climate Engagement Canada
Cultural Enrichment
United Way ILEO Charter
Women in Capital Markets
*Please see our TCFD Report to read more about RPIA’s efforts in these areas.
OUR ROLE AS AN EMPLOYER: RPIA’S EFFORTS ON SUSTAINABILITY
FIRM INVESTMENT MANAGEMENT
OVERVIEW
In This Section:
Supporting Our Employees
>
Engaging with Our Community
>
>
Our Diversity, Equity & Inclusion Journey
>
Measuring Our Climate Impact
The following information covers RPIA Fiscal Year 2023, which is from June 1 st , 2022 - May 31 st , 2023 .
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SUPPORTING OUR EMPLOYEES
RPIA’s Employee Engagement Efforts Our employee engagement efforts are purpose driven. RPIA seeks to empower and inspire employees to continuously grow in their professional and personal lives. We believe that employee engagement is an ongoing process that requires a supportive and attentive organizational culture. RPIA seeks to foster this culture by setting employee feedback as the cornerstone of its current and future engagement efforts. Beyond listening, RPIA engages employee feedback by providing opportunities for employees to launch or re-orient internal initiatives, aligning, and/or joining industry organizations that promote the firm’s engagement priorities. In line with our commitment to community engagement, RPIA’s Allyship Committee champions volunteerism, social activism, and meaningful community involvement. Open to all RPIA employees, the Committee hosts activities and events aimed at deepening our impact and fostering inclusive thinking, both in the workplace and in our everyday lives. Investing in the personal and professional development of our employees is an essential component of RPIA’s values. RPIA aims to live this belief by providing opportunities for ongoing learning and education, exposure to different practice areas within the firm, and access to additional resources, both internal and external, across all levels of seniority. RPIA’s core values of excellence, partnership, transparency, integrity, and community underpin its employee engagement efforts. We are proud to share our progress and future areas of focus as we continue to embed these core values in all of our work here. Our Journey Career Pathways 2023 Progress: Identifying Key Competencies 2024 Goals: Employee Development Plans
• In FY2023, we laid the groundwork for our formalized employee development strategy by conducting an in-depth analysis of our current skills landscape. • This included gathering feedback from leadership and employees to understand the key competencies required for success across various roles. • We also began the initial phase of identifying function-specific competencies, setting the stage for a comprehensive framework that will be rolled out in FY2024.
• The upcoming year will focus on the comprehensive mapping and integration of core competencies across all levels of the organization. This framework will be pivotal in creating a fair and transparent development process. • Our approach will also include the rollout of tailored development plans designed to support employees and enhance their contributions to the overall success of the firm. • Our aim is to implement a robust learning and development strategy, featuring a diverse array of opportunities including custom, internally- developed programs tailored to meet the specific needs of our workforce.
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Connected Communications 2023 Progress: The RP Roundup
2024 Goals: A Multi-Channel Approach
• In FY2023, we successfully launched a company- wide employee newsletter, the RP Roundup, which has quickly become a central hub for sharing updates on internal initiatives, including social events, volunteer activities, and wellness programs. • The newsletter has also served as a platform to celebrate special occasions in an employee’s life as well as significant cultural celebrations. • This initiative has already begun to strengthen connections across teams and improve overall employee engagement.
• Building on the momentum from FY2023, we will further refine our approach by focusing on integrating more interactive elements to our internal communications strategy to encourage greater employee participation. • Additionally, we will enhance our monthly townhall format to provide more comprehensive firm updates and foster a stronger sense of community. • To further promote transparency and alignment across the firm, we will strengthen our how we share important updates and changes throughout the organization.
RPIA is a “Great Place To Work”! 2023 Progress: GPTW Certified
2024 Goals: Implementing Feedback
• In FY2023, we undertook the Great Place to Work (“GPTW”) survey and subsequently we pursued and were awarded the GPTW Certification. • As part of this process, we reviewed the firm’s top strengths and areas of improvement with all employees in an effort to ensure transparency across our organization.
• In FY2024, we anticipate undertaking the Great Place to Work survey, with the intent of including updates based on our past learnings. • Over the coming years, we aim to incorporate the feedback we receive from the certification process to help inform and further develop our engagement efforts and our process to establish and update employee-facing policies.
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ENGAGING WITH OUR COMMUNITY
At RPIA, we believe in giving back to the community. Our mission is to facilitate charitable giving within our organization and the broader community by working collaboratively with our investors, employees, and community partners. Our focus areas include:
Charitable Giving
Empowering Our Communities
Empowering Our Communities Provide resources and support
necessary to empower individuals and their broader communities to grow and prosper
Enhancing Quality of Life Improve well-being and stability
CHILDREN & YOUTH
ART & CULTURE
through better access to resources and opportunities that can facilitate better quality of life. Fostering Diversity, Equity & Inclusion Address systemic barriers that limit opportunities for marginalized groups and promote fair, equitable, and inclusive decision-making. 2023 Update In FY2023, we established the official RPIA Donations Committee , which is comprised of six Principals and chaired by the CEO. These individuals are responsible for driving the firm’s charitable giving initiatives in a thoughtful and impactful manner – both for the firm and the benefiting communities. The Committee meets monthly and has implemented a formal approval process for reviewing philanthropic requests and ensuring adherence to our mission and three areas of focus.
IMMIGRATION INDIGENOUS COMMUNITIES
JEWISH COMMUNITIES
LOCAL COMMUNITIES
SPORTS
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Enhancing Quality of Life
Fostering Diversity, Equity & Inclusion
EDUCATION ENVIRONMENT
HUMAN RIGHTS
CIVIL RIGHTS
FOOD SCARCITY
HEALTH CARE
RACIAL EQUITY
LGBTQ+
HEALTHCARE RESEARCH
HOUSING SECURITY
WOMEN’S RIGHTS
MENTAL HEALTH
WATER & SANITATION
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RPIA ACE Program
First launched in 2022, the RPIA Academic and Community Empowerment (ACE) Program aims to provide a wealth of opportunities to disenfranchised groups through academic and community driven initiatives. The program strives to support the next generation of leaders from all backgrounds in Canada through scholarships, internships, and mentorship. As a firm, we are committed to empowering and nurturing the potential in our community, and doing our part to improve access to the industry in which we operate.
Internships
Scholarships
RPIA ACE Scholarship in Rotman Commerce at the University of Toronto (UofT) The inaugural ACE Scholarship Recipient was Onome Gbinije, a fourth-year student at UofT. “I don’t take for granted the impact of every opportunity I experience because I know that the most crucial investment I can make is in myself. Every opportunity, no matter how small, has the potential to shape my life in profound ways as I learn and grow. By investing in myself and embracing these experiences, I can unlock my full potential and achieve my greatest aspirations.”
In 2023, we welcomed our first cohort of ACE Internship students, including Kevin Roe, who is a third-year student at the UofT. We look forward to working with further ACE program interns in the future, building on Kevin’s experience. “The best thing about my internship was the opportunity to look at different companies and learn how to evaluate them from a credit perspective. Everyone at RPIA was always open to answering all my questions and willing to take the time to explain certain concepts comprehensively.”
Kevin Roe RPIA ACE Summer Intern 2023
Onome Gbinije RPIA ACE Scholarship Recipient (2023) from the University of Toronto
We can’t wait to see where Onome goes next in her career, and are honored by the opportunity to support her professional development.
“
Giving back to the community has always
RPIA ACE Finance Award for BIPOC Students at the University of Victoria
been an important part of our culture, and supporting these young professionals and future leaders as they begin their careers is truly rewarding.”
In addition to our UofT scholarship, RPIA has pledged $5,000 CAD per year for a non-renewable award for a third- or fourth-year undergraduate student who self- identifies as Black, Indigenous, or a Person of Colour (BIPOC). The student must have a minimum GPA of 3.0 to be eligible and demonstrate an interest in pursuing a career in the financial industry. Preference will be given to students with financial need.
- Richard Pilosof Principal & CEO
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OUR DIVERSITY, EQUITY & INCLUSION JOURNEY
At RPIA, we are dedicated to fostering and promoting Diversity, Equity, and Inclusion (“DEI”) in our workplace as we believe including diverse perspectives is essential for making high- quality business decisions. We celebrate and welcome our employees, stakeholders, and external personnel to support our mission to cultivate diversity, equity and inclusion across our organization. We are thrilled that Dannielle Ullrich, Principal, Chief Financial and Operating Officer serves as RPIA’s DEI Lead. We recognize that DEI efforts extend beyond gender alone and encompasses a wide spectrum of identities, experiences, and abilities. Our DEI-focused policy defines our commitment to fostering an atmosphere of dignity, respect, and safety for our employees, stakeholders, and external personnel. This policy challenges us to be a leader in adopting established industry best practices in the areas of diversity, equity and inclusion, and to take a consultative, thoughtful, and impactful approach to evolving our DEI policy and practices over time.
Measuring Representation
Women in the Workplace
RPIA is committed to ensuring its hiring practices can evolve and adapt to the growing demands of its business and position the firm to prioritize and take advantage of the increasingly diverse pool of talent. As a voluntary signatory to the 30% Club, and member of the Canada Chapter, RPIA is aligned with the organization’s aims, and seeks to achieve beyond 30% representation of all women in the firm’s decision- making bodies. We believe our effort to align with the 30% Club not only strengthens the representation of women within our leadership, but also fosters a more inclusive culture, promotes diverse perspectives, and enables inclusive decision-making. This effort cultivates a supportive environment that benefits all employees. “We seek to ensure there is balanced representation in key decision-making discussions regarding the strategic direction of the firm.” - Dannielle Ullrich, DEI Lead
Firm-Wide
6%
44%
50%
Women Men Prefer not to answer
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Women in the Workplace
Across Seniority Levels 1
Executive
30%
Management
40%
Experienced Professional
33%
Associate Professional
51%
In Governance Roles & Committees 2
Executive Committee
29%
Management Committee
50%
Investment Committee
23%
Risk Committee
23%
ESG Steering Committee
40%
1 Executive refers to all C-suite level members; Management refers to all department heads, directors, and managers with direct reports; Experienced Professional refers to sales directors, managers without direct reports, portfolio managers, associate portfolio managers, and accountants; and Associate Professional refers to all analysts, associates, and any other junior roles. 2 The Executive Committee and Management Committee are key decision-making groups within the firm and comprise both Executive and Management seniority levels.
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Improving Workplace Equity
2023 Progress In FY2023, we made meaningful strides toward improving workplace equity by appointing Dannielle Ullrich, CFO & COO, as RPIA’s DEI Lead. In this role, she oversees the development and implementation of our diversity, equity, and inclusion strategy, which includes setting goals, creating inclusive policies, and ensuring these principles are embedded across the organization and aligned with our broader objectives. We also established the ESG Steering Committee, a diverse group drawn from various business units, tasked with driving RPIA’s ESG strategy forward. Dannielle sits on this Committee, providing oversight of DEI training initiatives and data analysis, and collaborating with business units to foster a culture of inclusion. Her appointment as DEI Lead underscores our commitment to diversity, equity, and inclusion at the highest level of our leadership. Please see Page 21 for further details related to the ESG Steering Committee. 2024 Goals In FY2024, we will continue to refine and strengthen our DEI strategies to ensure we hire and develop the best talent possible for roles across the organization. We will be bringing on a new Chief People Officer, who will ensure alignment with strategic and productivity goals. This individual will be responsible for talent acquisition, development, and retention, fostering an inclusive work environment and developing and implementing policies and procedures, managing employee relations and driving initiatives to enhance employee engagement and retention. We will continue to perform ongoing policy reviews, explore enhancing our approach to a diverse and inclusive workplace, and ensure robust oversight to maintain alignment with our broader firm objectives. The ‘Women in the Workplace’ data covering representation across seniority levels and in governance roles underscores areas of improvement. While representation in leadership positions has grown, particularly at the executive level, there remains work to be done to ensure equitable representation across seniority levels and in governance roles. Over the next few years, we are committed to advancing gender equity through deliberate actions that can bridge existing gaps and create a more inclusive leadership pipeline. In FY2024, we will continue leveraging targeted recruitment strategies to engage diverse talent pools through dedicated platforms and networks, broadening our reach to qualified candidates. Additionally, we recognize that external partnerships are key to sustaining this progress. In FY2024, we will deepen our relationships with women’s organizations and academic institutions to ensure we attract and nurture future female leaders in finance. To address leadership gaps, we will continue our commitment to developing talent through structured leadership development programs. These programs will offer women the tools needed to break through barriers, including targeted coaching, mentorship opportunities, access to external leadership courses, and improving their visibility within the industry. As we look ahead, our goal is to continue building an equitable and inclusive environment where women can have the access and resources they need to thrive at all levels of the organization, particularly in the roles and committees where gender diversity remains underrepresented.
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MEASURING OUR CLIMATE IMPACT
RPIA acknowledges that its activities as an employer and an investment manager have an impact on climate. As part of our sustainability strategy, we are committed to acknowledging, addressing and, to the best of our abilities, mitigating this impact. As part of our ongoing education related to our climate impact, we recognize that understanding the sources of our greenhouse gas (“GHG”) emissions is a key step in addressing and setting impactful goals for mitigation and, where possible, reduction. In 2023, we continued our partnership with BMO Radicle to update our GHG inventory and to review and assess our plans for mitigation and reduction. Important components of our efforts in 2023 include the implementation of energy consumption reminders, and the purchase of offsets derived from projects that are aligned with our focus on community and philanthropic action. By completing all component parts of the BMO Radicle Climate Smart program in 2023, we received Radicle’s Climate Smart Certification. We are encouraged by our on-going partnership with BMO Radicle, and look forward to sharing our future progress.
The activities captured covered emissions for the fiscal period of 2023: Scope 1: Office natural gas consumption Scope 2: Office electricity use
Scope 3: Office waste management, business travel (air/rail travel, hotels, taxis/Ubers/Lyfts), daily employee commuting, paper consumption, and heat/electricity from work-from-home
Our firm emitted a total of 86.06 tonnes 3 of greenhouse gases in FY2023, most of which resulted from business travel (road, air, and accommodation), staff commuting, and heat. This represents a meaningful (~15%) decrease from our emissions reported in FY2022. The shift in emissions was largely driven by a decrease in our scope 3 emissions inventories for heat and staff commuting, which we attribute to RPIA’s hybrid working model, and enhanced data collection efforts to ensure we more accurately account for emissions related to employees’ home offices and working environments. As in past years, our largest contributing categories are all linked to employee commuting and business travel.
86 tonnes of greenhouse gases emitted in FY2023
3 2023 emissions calculations do not include an evaluation of financed emissions (category 15 emissions). As tools, including those used by BMO Radicle, mature in their capacity to assess financed emissions, RPIA intends to include their assessment as part of its overall climate impact evaluation.
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GHG Inventory Results
GHG Emissions (tCO 2 e*)
120
103.6
100
86.1
79.7
71.3
80
60
40
24.7
20
0
FY2019
FY2020
FY2021
FY 2022
FY 2023
Scope 1
Scope 2
Scope 3
Total
Heat/electricity from WFH (scope 3) was a newly introduced category in FY2022 and was therefore not accounted for in previous years. Excluding this, our emissions are in line with 2019 and 2020 levels despite our workforce having grown significantly since then.
Scope 3 Transportation Breakdown FY2023 (tCO 2 e)
Air and rail travel
23.9
25.4
Passenger vehicle travel
Employee commuting
9.4
OUR ROLE AS AN INVESTMENT MANAGER: SUSTAINABILTY AND THE INVESTMENT PROCESS
INVESTMENT MANAGEMENT
OVERVIEW FIRM
In This Section:
Our ESG Integration Process
>
Stewardship
>
Thematic Portfolios: Fossil Fuel Exclusion Strategies
>
Thought Leadership
>
Task Force on Climate Related Financial Disclosure (TCFD) Report
>
The following information covers RPIA Calendar Year 2023, which is from January 1 st , 2023 - December 31 st , 2023 .
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INVESTMENT MANAGEMENT
OUR ESG INTEGRATION PROCESS
Our ESG Integration Framework We aim to integrate the consideration of ESG risks and opportunities into the investment process to support and augment our fundamental financial and credit analysis. As the landscape evolves with new ESG data, disclosures, regulations, and reporting frameworks, we will continue to mature our approach to ESG integration. Our ESG integration framework enables the investment team to collect and analyze ESG-related data and disclosures from issuers. As part of our framework, we leverage the SASB framework, TCFD guidance, and our unique views and deep sector knowledge to assess ESG topics and trends that we believe are most likely to impact the investments we make on behalf of the portfolios we manage. ESG analysis occurs in line with portfolio objectives and in collaboration with our fundamental credit analysis when assessing potential investment opportunities. We also benefit from our global capital markets expertise, which enhances the team’s ability to engage with issuers on disclosure, trends, gaps and risks, including ESG risks, that we have identified. Credit analysis requires a complete understanding of the context of how a borrower operates, and it is clear to us that well-managed, well-governed companies are more likely to fulfill their obligations. Therefore, it becomes prudent to analyze and price all material risks, including financial, macroeconomic, and geopolitical risks. In our view, environmental, social, and governance risks intersect with and complement our traditional risk assessment efforts. In 2023, we leveraged findings from our ESG integration practices to help drive targeted engagement with select issuers. In this report, we highlight three engagements, each dealing with a different pillar of ESG: (1) environmental factors ; (2) social factors ; and (3) governance factors . Beyond our ESG integration framework, RPIA offers thematic portfolios that focus on specific ESG objectives. We are pleased to share an update on the progress of the Fossil Fuel Exclusion strategy in this report. ESG information, including details related to material risks and opportunities is part of the total mix of information RPIA considers as part of its investment decision making, and is not itself investment determinative. The impact and weight of ESG consideration, including our issuer engagement efforts, can differ between our portfolios based on individual portfolio objectives, strategies and suitability of investments. We encourage investors to review the offering documents of the respective RPIA managed funds for additional information.
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INVESTMENT MANAGEMENT
Oversight and Responsibility: ESG Governance Our commitment to responsible investment is overseen by the firm’s Investment Committee, ESG Steering Committee, and Risk Committee, and supported by each of the firm’s Principals. The firm’s efforts to ensure it upholds these commitments are embedded into each employee’s role. We believe that by working together, we can serve as an example to the issuers we invest in.
Investment Committee The Investment Committee consists of experienced investment professionals from the Portfolio Management and Risk Teams. The Investment Committee reviews material ESG risks identified by the Portfolio Management Team when appropriate or required. The Head of Credit Research is a member of the Investment Committee.
Risk Committee The Risk Committee consists of experienced Risk and Portfolio Management team members, the CFO & COO, the CCO, and risk management advisors from other functions. The Risk Committee sets risk limits, monitors all strategies against their risk policies, alerts the respective decision makers on any portfolio positioning that is approaching policy limits, and independently evaluates market conditions to assess evident risks. Principals Within the scope of the Advisory, Executive, and Management Committees, Principals ratify long-term strategic goals for the firm and ensure RPIA’s views on ESG-related risks are upheld across different groups. Supplementing the work done by the ESG Steering Committee, Principals ensure that the firm follows its own ESG philosophy and aligns itself with industry best practices. Principals direct firm strategy, and as part of this, how RPIA considers its approach to ESG, which is ultimately executed by the firm’s various committees and functional departments.
ESG Steering Committee
The ESG Steering Committee is a cross- functional body comprised of designees from different business units. The Committee’s goal is to evolve and guide RPIA’s approach to ESG, as applied to the firm’s operations and corporate culture. When reasonable, the Committee will also exercise oversight of the firm’s investment practices where alignment between the firm and our commitment and disclosures provided to UN PRI is needed. The ESG Steering Committee provides strategic oversight of the firm’s ESG Policy as necessary, reviews and approves ESG- related disclosures prepared for industry organizations (e.g., PRI); reviews and approves RPIA’s association or membership with industry organizations or initiatives that aim to promote ESG; reviews and approves RPIA’s direct or indirect engagement with policy makers with respect to ESG and sustainable investment; and champions continuous improvement on RPIA’s ESG- related commitments.
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Implementing Our ESG Integration Approach RPIA’s ESG integration approach, comprised of our analysis and engagement efforts, applies to all strategies managed by the firm. The approach may vary between portfolios based on individual portfolio objectives, strategies, and composition. As we analyze and engage on ESG factors, we consider the three pillars of ESG: (1) environmental factors ; (2) social factors ; and (3) governance factors , and seek to identify risks and opportunities that are likely to be material to the issuers we invest in over the short, medium and long term. Analysis of Issuers As part of our focus to determine the existence and materiality of the ESG risks and opportunities an issuer may face, we prioritize understanding the context in which an issuer operates, which includes an assessment of, among other items, its public reports, industry news and feedback from rating agencies. To enhance our analysis, we deploy our proprietary tool, the RP Barometer , to build a better understanding of the ESG risks an issuer may face. The Barometer captures quantitative metrics (e.g., current data and trends over time) and qualitative data that provide insights into how an issuers’ management team and boards develop and present ESG risks and deliver improvements. The Barometer is designed to supplement our fundamental analysis, and includes an evaluation of an issuer’s transition risk and workplace equity. Data outputs from the Barometer can also be used to understand the overall ESG performance of the issuers we invest in, and can help the investment team identify engagement opportunities. Qualitative inputs to our ESG analysis are important to understand the context of an issuer’s operations. This data can be used by our team to initiate discussions with management teams and third parties such as regulators, rating agencies, and other investors globally, on specific ESG factors and topics.
RP Barometer: Our ESG Analysis Process
Inputs Information from companies through reporting and engagement, data providers, rating agencies, news outlets, etc.
ESG Pillars Categorize inputs under ESG Pillars and Transition Analysis
RP Barometer
ESG Factors Common themes under each ESG Pillar used to categorize areas of focus
Metrics Quantifiable information assessed both on most recent data and trends overtime
Discussion Points Qualitative information to help guide assessment of company’s future management of ESG risks/opportunities
ESG Assessment
ESG Engagement
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RP Barometer in Action Example
When utilizing the Barometer, we generally focus our efforts on issuers either where there is a current concern or a concerning trend. We may already own the issuer’s debt, or we may be contemplating making an investment. The following Barometer output of an Aerospace & Defense issuer illustrates how the Barometer can be used to consider ESG factors in the investment process. This example focuses on an issuer we were holding in several of our portfolios. The company had been under scrutiny following negative headlines, prompting us to conduct a deep dive into both the credit fundamentals of the issuer and the pertinent ESG risks. Specifically, we were interested in what the data would reveal about recent developments in the company’s production operations. There were some concerns regarding environmental risk factors as the company’s production had relatively high emissions and energy intensity compared to peers in addition to not having any GHG reduction targets. Governance had been an issue historically, but the company’s new management team has focused on improving oversight and addressing legacy issues. Improvements thus far include a better process for line workers to report issues directly to senior management, prioritizing production quality over speed, and financially supporting suppliers to ensure stability and quality. The following pages contain excerpts of the Barometer report. We have not included the full report, which is quite comprehensive, but focused on the relevant sections given the sector this issuer operates in and the specific concerns we had. We have annotated the relevant sections, providing commentary on the data our team considered during their analysis. The Barometer findings supplemented our fundamental analysis and confirmed our theory on the company’s improving governance, and as a result, did not impact our position sizing. However, this analysis gave us the confidence to commit to adding more exposure to the issuer in the event of a better entry level.
COMPANY X
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Sample Barometer Output
Company X
Sector: Aerospace & Defense
Country of Risk: US
Ratings (M/SP/F): BBB/BBB-
Metrics (Current & Trend) Environmental Risk Factors
Current Rank: 2.9 Trend Rank: 2.7 Overall Rank: 2.8
Curr Rank
Trend Rank
Factors
Metric
Unit
Current
Trend
GHG Emissions Resource Management Resource Management
Total GHG CO2 Emissions Intensity per Sales Energy Intensity per Sales
CO2e/Rev MWh/Rev
16.7 59.4 18.1 0.2
3 3 2 4
-23.9 -22.3
2 2 2 3
1
Pct Renewable Energy Consumed Pct of Hazardous Waste Recycled
% % %
+6.0 -0.8
Ecological Impact Ecological Impact Ecological Impact Ecological Impact
Average Recyclability Rate of Products Water Use/Withdrawal Intensity per Sales Waste Generated per Sales
M 3 /Rev Mt/Rev
58.6 1.0
2 2
-12.0 +0.9
2 4
Metrics (vs. Peer Group)
Metric
X
A
B
C
16.7 59.4 18.1 0.2
20.7 77.2
Total GHG CO2 Emissions Intensity per Sales Energy Intensity per Sales Pct Renewable Energy Consumed Embedded Carbon Reserves Water Use/Withdrawal Intensity per Sales Waste Generated per Sales Spills Per MBOE
11.7 55.7 16.6
21.4 73.9 3.0 18.0
2
8.4 0.0
58.6 1.0
145.2 1.2
54.0 1.2
88.5 1.8
Policy Implementation
Count: 1/3
Factor
Policy
Y/N
3
GHG Emissions Resource Management Ecological Impact
GHG Reduction / Energy Use Policy Energy Efficient Product Offerings Critical Materials Policy
No No Yes
1.
1 Despite the lack of a formal GHG reduction or energy use policy, we spoke with the company and felt comfortable that the company had enough incentive from a fundamentals perspective to continue trending positively. The context of recent governance improvements also supported this position. The data revealed that environmental risk factors such as GHG emissions per sales (CO2e/ revenue) and energy intensity per sales (MWh/revenue) were trending positively. At the time of the report, the company was ranked third, trending to second. In the context of the Aerospace and Defense industry, we were comfortable with the company’s metrics relative to those of their closest peers.
2.
3.
For Illustrative Purposes Only
RPIA SUSTAINABILITY REPORT 2023
OVERVIEW FIRM
25
INVESTMENT MANAGEMENT
Carbon Profile
Average Rank: 2.0
Metrics (Absolute & Intensity)
Absolute Rank: 4.0 Intensity Rank: 2.0
Absolute Level of Emissions
Intensity of Emissions (mtCO2e/rev)
Total
Scope 1 Scope 2 Scope 3
Total
Scope 1 Scope 2 Scope 3
446 240 479 924
612 570 266 510
300,052 476 ,092 1,220 24,668
22 14 21 23
10 9 7 8
12 5 14 15
4,817 7,71 9 34 383
1,058 810 745 1,435
X A B C
4
504
359
160,855
25
11
15
4,258
863
Avg.
X A B C
X A B C
0
5
10
15
20
25
30
0
500
1,000
1,500
2,000
Mt CO2e / $ Revenue
Mt CO2e
Scope 1
Scope 2
Avg.
Source: Bloomberg, Company Filings.
When delving into the company’s carbon profile, the majority of their emissions were classified as Scope 3, which accounts for activities not owned or controlled by the company but caused by its value chain. Although this concern was raised regarding their production operations, the completed product showed a 20%+ improvement in fuel efficiency for end users, which will likely decrease overall Scope 3 emissions. As fuel efficiency is a top priority for end users with fuel being the second largest operating cost, the interests of both the company and end users are aligned to achieve lower emissions. 4.
In addition to these excerpts, the complete Barometer combines available data to provide our team with a fairly comprehensive summary of the company’s environmental, social, and governance risk factors to support or provide context for fundamental analysis and aid decision-making.
For Illustrative Purposes Only
RPIA SUSTAINABILITY REPORT 2023
OVERVIEW FIRM
26
INVESTMENT MANAGEMENT
STEWARDSHIP
Engagement Activities in 2023
As a fixed income investor, we occupy an important position among capital providers to many corporations. We believe engaging with issuers is a valuable part of our role as stewards of capital. There are unique opportunities for engagement within fixed income as outstanding debt is typically a larger portion of company balance sheets than equity, and private companies also issue debt in global capital markets. This allows fixed income asset managers to engage with influential companies not available to public equity investors. In the discussions we have with issuers, we gain insights that are not always available through a review of data or other reporting. Here, management teams share their future visions for managing ESG-related risks and opportunities, and we have the opportunity to discuss where companies can improve and to share the ESG topics that are important to our investors.
We incorporate ESG into our engagement practice by:
Through engagement, we can deepen our assessment of an issuer’s ESG profile on several fronts: • Breadth of an issuer’s disclosures across different business areas and whether meaningful metrics are tracked and reported • Quality of the information provided • Identifying industry-specific ESG factors on which to engage with issuers • Advocating for initial/increasing ESG disclosures and assisting issuers with identifying material information, gaps, and best practices based on global frameworks • Updating our understanding of the issuers’ ESG profiles we develop on an on-going basis, including our understanding of an issuers future areas of focus • Emphasizing our belief that management presentations and communications should support transparent disclosure of ESG strategy and achievements
• Forward-looking plans for ESG-related risks and opportunities • How well management teams are equipped to execute these plans
RPIA SUSTAINABILITY REPORT 2023
OVERVIEW FIRM
27
INVESTMENT MANAGEMENT
2023 ESG Engagement Examples
Convenience Store Operator December 2023
Environment
We met with a Convenience Store Operator in December that owns, supplies, and supports a coast-to-coast network of retail gas stations, electronic vehicle charging stations, frozen food retail locations, convenience stores, cardlock sites, bulk fuel, propane, heating oil, lubricants, and other related services to commercial, industrial, and residential customers; transports and distributes fuel through ships, rail, and highway carriers; and stores fuel in terminals and other owned and leased facilities, as well as engages in the low-carbon activities . In our view, this company’s role as both a gas station owner that is in the midst of a long-term transition to EV while also owning a refinery creates ample opportunity to engage with the company on its environmental initiatives and commitments.
Engagement Focus
The company has committed to expanding its EV network to 50 of its sites by 2024, and represents one of the largest growing ultrafast charging networks in British Columbia. The company seeks to understand consumer behavior as it relates to these sites, with the anticipation to expand to Quebec, Ontario and in the U.S., with a specific focus on the Rocky Mountain region, where EV infrastructure is still developing. The goal of the test sites is to determine whether EV drivers are as profitable as ICE drivers, and to utilize this key performance indicator to further build out the company’s EV transition plan.
Outcome
The company’s efforts and commitment to its EV transition did not result in an upgrade or positive outlook indication from Moodys. Nevertheless, we remain neutral in our view of the company. The EV conversion plan is being funded with low-cost government / CIB funding; however, the company does not seem to aspire to be a leader in EV, but is rather just following the market.
We will continue to engage with this company on their EV transition plan, as well as other environmental efforts.
For Illustrative Purposes Only
RPIA SUSTAINABILITY REPORT 2023
OVERVIEW FIRM
28
INVESTMENT MANAGEMENT
German Automaker December 2023
Social
Governance
In November 2022, MSCI marked a German automaker with a “red flag” in its social issue category due to allegations of forced labour related to Uyghur employees at a joint venture manufacturing plant in Xinjiang, China. The automaker commissioned an independent audit performed by a Berlin-based auditor, which published results on December 6, 2023, confirming that they found no indication of forced labour. On December 12, 2023, MSCI upgraded the red flag on labour rights and supply chain issues to an orange flag, in response to the positive audit. However, the following day, senior staff at the auditor distanced themselves from the audit, posting on LinkedIn that very few team members within their firm “participated, supported, or backed this projected.” The Founder and CEO of the auditing firm, has stood by the results of this audit, stating that his assessment as project director of this audit remains unchanged.
Engagement Focus
We met with members of the German automaker’s Investor Relations team and Management Board following these updates in December 2023. During our discussion, we asked about the recent audit and the subsequent distancing by members of the auditing team. The company confirmed that MSCI is pleased with the audit process, and the automaker was in dialogue with MSCI prior to the audit and ensured all required materials were included in the audit process. In addition to the social issue category upgrade, the company was also upgraded from fail to watchlist on the MSCI UN Global Compact Alignment assessment, which makes them eligible for certain ESG indices that screen for these scores.
Outcome
This engagement increased our confidence in the company’s credit profile, and the MSCI rating upgrades regarding the labour issue helped improve demand, with investors bidding up the company’s secondary bonds following the MSCI update. We will continue to monitor the company’s governance oversight and labour rights practices. The automaker also has carbon neutral and carbon emission reduction goals on the environmental side, which we are monitoring as we wait for updated reporting on their progress.
Read the Full Engagement Report
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RPIA SUSTAINABILITY REPORT 2023
OVERVIEW FIRM
29
INVESTMENT MANAGEMENT
U.S. Alternative Investment Manager February 2023
Governance
In Q1, we met with a U.S. alternative investment asset manager that has three main operating lines of business. Due to its decentralized legal entity structure and a centralized operating model, its legal structure poses challenges to providing full transparency into the ESG risk and exposures of its subsidiaries’ underlying funds. One of its three main lines of business includes managing a number of Business Development Companies (“BDCs”), many of which have issued bonds publicly in addition to the bonds issued by the ultimate parent company.
Engagement Focus
We held two meetings with the company, one in December 2022 and another in January 2023 with additional members of the management team. Our conversations focused on the issuer’s reporting and product governance, particularly: • Disclosure of ESG risks and exposures of investments held by entities lower in the issuer’s capital structure. • Robustness of their sustainability reporting (ambitions regarding CSR, etc.) and alignment with regulatory (e.g., SEC) and voluntary sustainability reporting frameworks (e.g., TCFD, SASB, GRI). As a public company, they will be required to comply with the impending new SEC rules for sustainability reporting. In early 2022, they hired a Head of ESG to address current gaps in reporting and disclosure.
Outcome/Recommendations
Our engagement with this company is on-going. We provided several points of feedback to the issuer on our recent calls. We would like to see them doing the following: • Acting as a leader in the alternative asset manager and BDC sectors, specifically having more clarity on the measurement of its climate impact (Scopes 1, 2, and 3). • Setting meaningful emissions reduction targets or a net-zero plan and beginning to see demonstrable execution of any plan. • Creating an ESG Governance Framework and forming a dedicated ESG research team and an ESG committee to strengthen the company’s ESG framework and governance. • Expanding commitments to the social pillar, building on their Community Loan Program. • Eventually considering a green, social, sustainable, or sustainability-linked bond issuance. We intend to hold further meetings with management in due course to receive feedback on our discussion and forwarded materials and questions.
Read the Full Engagement Report
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RPIA SUSTAINABILITY REPORT 2023
OVERVIEW FIRM
30
INVESTMENT MANAGEMENT
THEMATIC PORTFOLIOS: FOSSIL FUEL EXCLUSION STRATEGIES
We have two thematic strategies, RP Broad Corporate Bond (Fossil Fuel Exclusion) and RP Broad Corporate Bond (BBB, Fossil Fuel Exclusion). Both strategies employ a negative screening approach, to meet with stated ESG-related investor objectives. In partnership with one of our institutional investors, we developed a first-of-its-kind fossil fuel excluded corporate bond strategy for investors who take an exclusionary approach to ESG. The approach is an evolution of our RP Broad Corporate Bond strategy, which has a ten-year track record of generating over 175 bps of added value above the FTSE Canada All Corporate Bond Index (gross, annualized, since inception). The RP Broad Corporate Bond (Fossil Fuel Exclusion) strategy was launched in July 2022 and takes a rules-based exclusion approach to screening fossil fuel intensive issuers out of the fund and the benchmark. As its name suggests, this strategy excludes all companies with direct involvement in or significant ownership of fossil fuel products within the Energy sector at the time of investment. We also screen for tobacco companies, issuers with cluster emissions, and those involved in controversial weapons. The strategy maintains the performance target of the “original” strategy but has a secondary objective of maintaining a lower WACI (Weighted Average Carbon Intensity) than the already- carbon reduced FTSE Canada All Corporate ex-Fossil Fuels Enhanced Bond Index. The strategy is an innovative solution through which our investors were able to achieve both reducing fossil fuel exposure and obtaining superior returns. Performance as of December 31, 2023
Strategy AUM: $169 Million
1 Mo
3 Mo
YTD
1 Yr
SI
RP BCB FFE
3.18% 2.96% 0.22%
7.86% 6.98% 0.88%
9.53% 7.95% 1.57%
9.53% 7.95% 1.57%
8.62% 5.98%
Index
Added Value 2.64% RP BCB FFE= RP Broad Corporate Bond (Fossil Fuel Exclusion). Index = FTSE Canada All Corporate Ex Fossil Fuel Enhanced Bond Index. Source: FTSE.
RP BCB FFE Weighted Average Carbon Intensity (WACI) Relative to the Index
WACI
- 10 20 30 40 50
34% Average Reduction Since Inception
Sep-22
Dec-22
Mar-23
Jun-23
Sep-23
Dec-23
Strategy
Index
As at December 31, 2023. Index = FTSE Canada All Corporate Ex Fossil Fuel Enhanced Bond Index. Source: S&P TruCost.
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