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Morningstar

Baird Aggregate Bond Inv BAGSX Sustainability

Morningstar Medalist Rating
| Medalist Rating as of | See Baird Investment Hub

Sustainability Analysis

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Sustainability Summary

 | Morningstar Manager Research  

Baird Aggregate Bond Fund has a number of attributes that may meet the expectations of sustainability-focused investors, despite some issues worthy of attention.

Baird Aggregate Bond Fund has an average Morningstar Sustainability Rating of 3 globes, indicating that the ESG risk of holdings in its portfolio is similar to that of its peers in the US Fixed Income category. Investors concerned about ESG risk may be better off with funds in the category that receive 4 or 5 globes, as they tend to invest in securities less exposed to ESG risk. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, such as climate change and inequalities, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.

The fund has an asset-weighted Carbon Risk Score of 5.68, indicating that its current equity and/or bond holdings have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets. Currently, the fund has 4.61% involvement in fossil fuels, which compares favorably with 5.55% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.

One potential issue for a sustainability-focused investor is that Baird Aggregate Bond Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes.

The fund has a modest level of exposure (7.61%) to companies with high or severe controversies. Companies with high or severe controversies are involved in incidents such as corruption, employee abuses, environmental incidents, and corporate scandals that pose serious business risks to the company.

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ESG Commitment Level Asset Manager

 | Low , 

Proceeds with Extreme Caution.

The firm does not offer any ESG-focused strategies, nor does it mandate any standard ESG integration practices within its existing offerings. Investment professionals use third-party data to evaluate ESG risks alongside traditional investment risks within the firm’s majority fixed-income offerings. However, there are no ESG-specific targets against which portfolio managers run their strategies, so consideration of ESG risks only affects investment decisions if there is a direct impact on cash flows or creditworthiness of issuers. Instead, the firm focuses its ESG research on how to navigate a dynamic regulatory environment while focusing on long-term financial outcomes.

Because of concerns about unstandardized ESG data, especially within fixed income (which makes up roughly 95% of the firm’s assets under management), Baird remains cautious in building out ESG products. A dedicated ESG team would significantly improve the firm’s capacity to navigate these challenges. Where other firms have built teams of ESG professionals and created internal curricula around ESG investing, Baird relies on one key ESG risk analyst for support. Baird’s main avenue for ESG training is the CFA ESG designation, which only a handful of the firm’s analysts have received.

Beyond product offerings and resources, the firm’s engagement efforts are limited and mainly focus on issues of corporate governance. Within fixed-income investing, engagement can take many shapes such as collaborating with other firms to encourage change and communicating environmental and social concerns to issuers. Along those lines, Baird’s corporate credit team has reduced positions because of ESG risk in the past but only in severe cases. For example, Baird trimmed its exposure to Exxon Mobil because of environmental concerns and has avoided exposure to Russian sovereign debt altogether because of poor governance, even ahead of the invasion of Ukraine.

However, these instances are isolated as the firm does not have a detailed, ESG-focused engagement and escalation policy. Public-facing stewardship reports, proxy-voting policies, and voting rationales have become more prevalent throughout the industry in recent years, but Baird’s transparency into its stewardship activities is lacking.

Ultimately, the firm has made some progress in recent years but has a long way to go to catch up to its peers.