Spotlight on Women: A Conversation with Judy Wesalo Temel

Spotlight on Women: A conversation with Judy Wesalo Temel, Senior Vice President, Director of Credit Research, Fixed Income and her start in public finance, the growth of ESG , and her outlook on the changing credit landscape.

How did you first get interested in Public Finance and ESG?

Mrs. Wesalo Temel: I studied economics and public policy as an undergraduate, and then got a master’s in public administration. After first working in city government, I became a municipal bond analyst, which was a natural fit for me because of my interests in the synergies between the economic and financial policies of the federal, state and local governments and their relationships to the capital markets. 

Coming from a public finance background, the integration of Environmental, Social and Governance factors (ESG) in financial analysis has been a logical evolution.   Providing the capital for good healthcare, education, infrastructure, and water quality – these are the reasons why public finance and the municipal bond market exist and incorporating ESG brings credit analysis and investing to the next, more sophisticated and comprehensive level.    I have spent my career in credit, both on the investor and the public finance sides and shaping the discussion and implementation of this extraordinarily important aspect of credit analysis is very exciting

Today, I am proud to be part of Fiera’s ESG leadership team, focusing on the integration and use of ESG factors in credit analysis and our future planning for how we use ESG factors in portfolio construction.  ESG integration is the next chapter in modern portfolio management and as a UN PRI signatory, we take this responsibility to be a leader in this field very seriously.   It’s a challenge I have found both exciting and invigorating, as we pioneer new approaches to ESG integration in municipal and corporate credit analysis. As Director of Research and co-chair of FCI’s ESG Committee, I am very proud of the progress we have made in the past few years in this area and I am truly excited about the opportunities ahead of us.

Do you think that the perception is shifting with regards to ESG’s ability to generate outperformance? If yes, what are the major implications of those changes?

Mrs. Wesalo Temel: The body of literature on outperformance is not as fully built out as it is with equity investing, where ESG investing started.  For corporate bonds the academic research on how much outperformance is generated specifically through ESG analysis is limited, and there is even less targeted research on ESG in the municipal bond space.  Our approach is that understanding ESG factors help you manage risk better.  

Fiera Capital can give an ESG score to municipal and corporate issuers, which is the first step.  Then we can also tailor portfolios to clients’ impact investing goals.   For example, if a client wants to invest in clean water, health, or education – we can select appropriate names knowing what the use of proceeds are, and what the potential impact could be.   

How is your role in providing ESG ratings different from that of ESG rating agencies?

Mrs. Wesalo Temel: There are data vendors that specialize in ESG and have ratings for many companies, but not for many municipal issuers.    They use data sets that are material in assessing ESG factors by corporate sector. The selection of data points differs across each organization reflecting the evolution and growth in this field, and how the analyses weight the importance of each factor in the total score. 

The major US rating agencies in the past two years now explicitly include ESG in their analyses, in varying ways, as they also changed their thinking about how to best assess risks that many investors were asking them about.  We view this as a positive development in the market. I am also a member of the UN PRI Advisory Committee on Credit Ratings. and one of our goals is to continue discussing and engaging with the rating agencies about the importance of integrating ESG in credit ratings. 

At Fiera Capital, my role in integrating ESG in the investment process is different from rating agencies and vendors, because we as asset managers are the ones responsible for investing clients’ portfolios and ultimately, we answer to them.  

Do you see a connection between how you approach ESG and how you approach building your team?

Mrs. Wesalo Temel: Specific factors differ between corporate and municipal ESG scores, but we use a sector approach for both.  On the muni side there was no industry model, so we created our own. The intellectual exercise of exploring the work of the PRI, SASB, and thinking how Sustainable Development Goals intersect with public finance is powerful and transformative in how we think about how the credit allocation process can impact the world around us.  In the design of our own proprietary municipal credit process, we went back and forth with which factors that go into looking at the ESG impacts of these different sectors. On the corporate side, where there is further work done, we also examined governance and place a high weight on it.   After much discussion between the team and larger firm, we concluded that the governance element is the most important factor.  If you don’t have good governance, it’s very difficult for the other aspirational goals and programs to happen. 

We have moved from the design phase to the implementation phase now. Our proprietary scoring capabilities are growing, our ability to score portfolios is also moving into the implementation phase for both corporates and municipals, and our integration of ESG factors in fixed income portfolio construction continues to develop and improve. We think about how to use ESG in municipal relative value analysis and to inform our security selection process.  We have learned a lot through this process of education and engagement and it’s a journey our team has embraced.

Lessons Learned

Mrs. Wesalo Temel: Throughout my career, I have learned that one thing you can count on is that there is always change.    The world is not standing still, so neither should we. With such rapid change we must figure out a way to not only keep up with it, but ideally get ahead of it. When ESG became a topic of discussion a few years ago, it was not well defined and because people did not understand it, they hesitated to incorporate it. Today, the biggest investors in the industry are taking ESG seriously and we’ve reached a critical period where we may begin to see concrete examples and metrics around impact on performance.

On a personal level, since the world is changing all the time, I believe you need to be open to all kinds of new and existing ideas and critically evaluate them. Ask lots of questions. Speak up. And make your voice heard!