Integrating ESG into the Guggenheim Investment Process

The principles of ESG are specific as they relate to security selection, valuation, and risk mitigation in the investment process.

While sustainability has broad implications for a wide range of investment practices, challenges, and opportunities, ESG considerations are specific as they relate to security selection, valuation, and risk mitigation in the investment process.

At Guggenheim, we view ESG investing as an important component of our investment philosophy and process. We believe that ESG factors can meaningfully influence investment outcomes, and that careful analysis of these criteria are a factor in evaluating the risks associated with different investments. Evaluating these factors may lead to actions, including steering capital away from or towards companies in consideration of their ESG characteristics. It could also include strategically seeking investment opportunities that generate long-term value for our clients, are sustainable in nature or advance innovative solutions to achieve positive, scalable change for society and the environment.

While we have considered ESG criteria in areas of our investment processes for some time, we believe that as markets become increasingly aware of these factors and price investments accordingly, it is incumbent on us to take a formalized approach to addressing them across our alpha-seeking strategies. Our investment professionals primarily conduct ESG assessments in a bottom-up fashion and have access to data and insights from leading third-party research to provide scale in their analyses. When appropriate, they may also engage issuers on a case-by-case basis to encourage best practices on ESG issues. Examples of ESG criteria that we consider throughout our analysis are set forth below:


  • Pollution & waste
  • Climate change impacts
  • Biodiversity and habitat protection
  • Fuel and energy management


  • Product liability
  • Community outreach
  • Human capital
  • Data security and privacy


  • Ethics and corruption
  • Accounting, audit and disclosure practices
  • Corporate behavior
  • Board structure

At Guggenheim, the process by which these considerations are coordinated with the daily practice of portfolio management are governed by our ESG Integration Statement. In practice this means that, where relevant, our investment professionals include an assessment of ESG-related criteria alongside traditional fundamental factors. In such situations where we believe that ESG criteria will have a material impact on an investment’s return or issuer’s financial performance, we weight these criteria alongside traditional factors in making investment decisions.

At Guggenheim, we disaggregated our fixed-income investment process into primary and independent functions performed by four specialized groups: The Portfolio Management Team, Portfolio Construction Group, Macroeconomic Research, and Sector Teams work together to create optimally structured investment portfolios, and all consider ESG criteria within their processes.

Each of the four groups has more time to focus on—and is the only group responsible for—its area of expertise. In our disaggregated process, we believe the specialized roles work together to enable a better process of making decisions. More effortful, deliberative decision making, as demonstrated in seminal work by Nobel Prize winner Daniel Kahneman and his colleague Amos Tversky, is intended to minimize cognitive biases and remove the emotional component from the process.

Guggenheim’s Investment Process

Guggenheim’s Investment Process

  • The largest portion of the ESG analysis is managed by the research analysts within our Sector Teams. These analysts are the closest to the companies and issuers they cover and in the best position to assess the relevance and materiality of ESG issues. They incorporate ESG criteria into their bottom-up, fundamental analyses of issuers, evaluate risks, such as litigation, regulatory sanctions or loss of business opportunities associated with a company’s ESG practices, and combine them with relative value views. Industry, sector, and country level dynamics are also assessed, particularly as a means of guidance to identify and appropriately weight ESG factors.
  • The Macroeconomic Research team, in addition to providing the outlook on the U.S. and global business cycle and market forecasts, also analyzes sovereign credits, and factors in elements of ESG, particularly governance, into their views.
  • The Portfolio Construction Group, by using inputs from the Sector teams and the Macroeconomic Research team, incorporates in turn those ESG factors into portfolio design.
  • The Portfolio Management team is an internal consumer of the aforementioned ESG analyses and assesses these and other factors alongside each other at the aggregate portfolio level, while also ensuring that any ESG-specific client guidelines are being met.

Should the investment team uncover an ESG risk or certain practices during the due diligence or monitoring process, that they believe can be better managed by the issuing company to mitigate its overall risk, they will assess the level of materiality and underlying factor driving the specific issue/industry and then incorporate that in their determination of the investment’s relative value. The presence of an ESG risk is not necessarily a reason to exclude a specific position from our investment universe or not to perform due diligence on it. In this regard, ESG risk is treated in our process like other risks (e.g., financial, covenant, interest rate, and liquidity) in that it allows the analysts to more comprehensively assess the credit quality of a given investment versus its return potential, and to subsequently make an informed decision.

Recognizing that an issuer’s risk profile will change over time, our approach incorporates a forward-looking assessment of ESG criteria. In practice, this means that we may rate an issuer’s ESG characteristics more favorably if it is taking concrete steps to improve its risk profile by improving governance, addressing environmental or social policies, or deploying capital towards projects that are likely to lead to a more sustainable enterprise. The inverse is also true if we believe an issuer’s ESG characteristics are likely to deteriorate in the future.

The evaluation of ESG criteria within our actively managed equities business shares many of the same qualities with fixed income, with additional emphasis on quantitative analysis of ESG criteria in certain strategies.

For our accounts that own equities, we have established a proxy voting policy. These policies and procedures serve as guidelines for proxy voting decisions and detail the process by which such decisions are made, including votes related to ESG issues.

In many cases, we use data and insights from leading third-party research to provide scale in the analysis of ESG-related criteria within our portfolio holdings and the broader market. Third-party research is considered as one input within the ESG due diligence process; we believe our investment teams, who are sector specialists and deeply involved in analyzing issuers, are ultimately best positioned to determine the materiality of ESG criteria.

The Guggenheim Investments ESG Oversight Committee, under the direction of the Sustainability Stewardship Council, has ultimate responsibility for overseeing the Firm’s execution and integration of ESG considerations into our investment strategy and into other relevant Firm processes and practices. It is a cross-functional team of experienced executives from various departments ranging from Compliance and Strategy to Risk Management and Investments that regularly reviews this Statement against industry best practices and internal development and integration. On a broader level, the Sustainability Stewardship Council, a cross-functional leadership team comprised of senior executives, oversees the Firm’s overarching sustainability strategy and execution.

Case Study: ESG Analysis of Medical Services Provider

An outsourced medical services provider came to market with a new deal that raised red flags around unethical and potentially fraudulent business practices related to out-of-network patient billing and upcoding of Medicare/Medicaid expenses. Alongside traditional fundamental factors, our analysts assessed materiality of the issues by noting that (a) patient billing practices were topical in the current regulatory dialogue, (b) they represented an outsized contribution to EBITDA, and (c) there were clear reputational risks involved for the business’ brand. Despite benefiting from both its status as a market leader within the growing outsourcing market and the lack of capital expenditure spending needs to draw from cash flows, we judged that its pricing and upcoding practices represented material risks to financial performance on a go-forward basis. We therefore passed on the deal and witnessed immediate softness in secondary trading of the new deal after issuance. Around the same time, a key insurance partner announced it may drop the Company from its network citing “skyrocketing costs.”



Investing involves risk, including the possible loss of principal. Infrastructure investments may be subject to a variety of risks, not all of which can be foreseen or quantified, including operating, economic, environmental, commercial, currency, regulatory, political and financial risks. Investing in a specific sector such as infrastructure is more volatile than investing in a broadly diversified portfolio, as there is a greater risk due to the concentration of holdings in issuers of similar offerings. Sustainability requirements, including environmental, social, and governance (ESG) obligations may limit available investments, which could hinder performance when compared to strategies with no such requirements.

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Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management.