At BBH we recognize that climate-related risks present significant challenges to society, the global economy, and financial markets. BBH Investment Management believes that physical climate risk and the global transition toward a lower-carbon economy present both potential risks and opportunities to our clients’ investments. The consideration of environmental, social and governance (ESG) criteria, including climate risk, in our investment due diligence enhances our ability to manage risk and achieve our long-term objectives.
As an active asset manager, our investment teams conduct research to determine the materiality of risks and opportunities, including climate-related issues, for each security. Across our equity and fixed income businesses, consideration of the range of physical risks (e.g. extreme weather events) and transition climate risks (e.g. lower carbon policies and regulations), help us to effectively assess the long-term sustainability and durability of our investments. Each portfolio management team integrates the consideration of relevant climate-related issues and assesses the materiality of their impact within its investment analysis, taking into account specific company, sector, and asset class issues. Material ESG factors, including climate-related risks and opportunities, have always, and continue to be, embedded in our investment criteria as they impact our assessment of the potential economic returns of a business.
We are a member of the United Nations Global Compact and a signatory to the UN-supported Principles for Responsible Investment (PRI). Through the PRI we are engaged with the Taskforce on Climate Related Financial Disclosure (TCFD). We support the principles and goals of these organizations, including efforts to help society manage the challenges associated with climate-related risks.
On a firmwide basis, the BBH Executive Sustainability Council serves as a governing council for BBH’s sustainability initiatives, overseeing and monitoring our sustainability framework, including the approach to and management of climate-related risks. In BBH Investment Management the ESG Oversight Committee (ESG OC) is responsible for monitoring ESG best practices and developments, including the impact of climate-related factors on our clients’ portfolios. On a regular basis the ESG OC and our portfolio managers report to the BBH Investment Management Oversight Committee (IMOC) which has ultimate oversight of our investments.
Across the Fixed Income universe, we assess both the direct environmental risk to a given investment, in addition to the risks and opportunities associated with the transition to a lower carbon economy.
When evaluating these risks, we consider the financial, operational and structural mitigants to those risks:
- Financial risk – we assess our obligors’ ability to manage the potential financial implications related to climate risk, as well as obligors’ ability to appropriately invest in their businesses to ensure compliance with environmental standards and best practices to support decarbonization.
- Operational risk – we recognize that certain capital-intensive businesses and issuers are inherently more exposed to environmental risks than other businesses that consume less power and natural resources.
- Structural considerations – we generally consider that the upper tiers of the capital structure, or other secured debt, tend to have lower credit risk as it relates to ESG, given that the overall risk of credit impairment is lower.
- Transparency – when interacting with management teams, our investment teams encourage transparency and proactive disclosure of climate-related data, which in turn helps us ensure that material risks are appropriately managed.