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Payden Emerging Markets Bond PYEMX Sustainability

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Sustainability Analysis

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Sustainability Summary

Payden Emerging Markets Bond Fund may not appeal to sustainability-conscious investors.

This fund has the second-lowest Morningstar Sustainability Rating of 2 globes, indicating it holds securities with relatively high ESG risk compared to that of its peers in the Emerging Markets Fixed Income category. Funds with 4 or 5 globes tend to hold securities that are 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, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.

One potential issue for a sustainability-focused investor is that Payden Emerging Markets Bond Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate are more likely to align with the expectations of an investor who cares about sustainability issues. One area to watch is the strategy’s carbon risk exposure. Although Payden Emerging Markets Bond Fund's 12-month asset-weighted Carbon Risk Score of 34.2 is classed as medium, it is situated at the higher end of the medium carbon risk band, indicating that the fund's portfolio holdings would fare worse than its peers in the transition to a low-carbon economy. Investors concerned about the transition risks may prefer to consider funds with negligible or low carbon risk. These funds invest in companies that tend to operate in sectors less exposed to the transition (such as healthcare and IT) and/or companies in more carbon-intensive sectors (such as industrials and utilities) but that consider climate change in their business strategy and products, and therefore are positively aligned with the transition. Currently, the fund has 60.1% involvement in fossil fuels, which is high in both absolute and relative terms. The average peer in the same Emerging Markets Bond category has 39.7% exposure to fossil fuel-related businesses. Companies are considered involved in fossil fuels if they derive at least 5% of their revenue from thermal coal, oil, and gas. The fund has extremely high exposure (30.64%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they can damage the reputation of both companies themselves and their shareholders.

ESG Commitment Level Asset Manager