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Sycomore Asset Management

PRI reporting framework 2017

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ESG incorporation in actively managed fixed income

Implementation processes

FI 04. Incorporation strategies applied

04.1. Indicate 1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and 2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.

Corporate (non-financial)
0 Screening alone
0 Thematic alone
40 Integration alone
60 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%

04.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

Sycomore Selection Credit (SSC) is Sycomore AM's only corporate-bond SRI-labelled fund. SSC's SRI approach consists in filtering the universe to exclude companies that are too risky on 6 key criteria:

1. Environmental risk (upcoming regulations, potential fines, litigation provisions, etc.)

2. Quality of social climate (known social conflicts, abnormally high rates of turnover or absenteeism, etc.)

3. Reputation risk (controversies, activities in highly-sensitive areas or businesses, etc.)

4. Financial communication risk (results vs guidance history, openness and availability to meet with investors, etc.)

5. Accounting risk (independence of auditors, complicated and obscure accounting, etc.)

6. Bondholder risk (aggressive leverage or share buyback, debt financing of dividend, etc.)

An issuer that obtains a rating below 2 out of 5 on one of these criteria (or on the overall ESG score), will be excluded from the investable universe. This approach screens out over 30% of the initial universe.

04.3. Additional information [Optional].


FI 05. ESG issues and issuer research

05.1. Indicate which ESG factors you systematically research as part of your analysis on issuers.

Select all that apply
Corporate (non-financial)
Environmental data
Social data
Governance data

05.2. Indicate what format your ESG information comes in and where you typically source it

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

05.3. Provide a brief description of the ESG information used, highlighting any differences in sources of information across your ESG incorporation strategies.

We collect data first and foremost through company annual and sustainability reports and one-to-one meetings with management/sustainability teams/HRs. We also use third-party information such as publications from brokers, calls with various experts, NGO publications, newspapers, social networks, etc.).

05.4. Additional information. [Optional]


FI 06. Processes to ensure analysis is robust

06.1. Indicate how you ensure that your ESG research process is robust:

06.2. Describe how your ESG information or analysis is shared among your investment team.

06.3. Additional information. [Optional]


(A) Implementation: Screening

FI 07. Types of screening applied

07.1. Indicate the type of screening you conduct.

Select all that apply
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

07.2. Describe your approach to screening for internally managed active fixed income

Sycomore Selection Credit (SSC) is Sycomore AM's corporate-bond SRI-labelled fund. SSC excludes companies that are too risky on 6 key criteria:

1. Environmental risk (upcoming regulations, potential fines, litigation provisions, etc.)

2. Quality of social climate (known social conflicts, abnormally high rates of turnover or absenteeism, etc.)

3. Reputation risk (controversies, activities in highly-sensitive areas or businesses, etc.)

4. Financial communication risk (results vs guidance history, openness and availability to meet with investors, etc.)

5. Accounting risk (independence of auditors, complicated and obscure accounting, etc.)

6. Bondholder risk (aggressive leverage or share buyback, debt financing of dividend, etc.)

The remaining assets invested in corporate bonds integrate ESG criteria but are not SRI-labelled.

Finally, the following exclusion policies apply:

1. Exclusion of all controversial weapons for all investments

In line with the Oslo and Ottawa conventions, Sycomore AM excludes any investment in controversial weapons.

2. Exclusion policy for SRI funds

For SRI funds, it does not invest in companies that produce weapons or weapon systems, nuclear power, GMOs and tobacco, and that derive more than 5% of their revenue from these activities.

07.3. Additional information. [Optional]


FI 08. Negative screening - overview and rationale

08.1. Indicate why you conduct negative screening.

Corporate (non-financial)

Corporate (non-fin)

08.2. Describe your approach to ESG-based negative screening of issuers from your investable universe.

Sycomore Selection Credit (SSC) excludes companies that are too risky on 6 key ESG criteria:

1. Environmental risk (upcoming regulations, potential fines, litigation provisions, etc.)

2. Quality of social climate (known social conflicts, abnormally high rates of turnover or absenteeism, etc.)

3. Reputation risk (controversies, activities in highly-sensitive areas or businesses, etc.)

4. Financial communication risk (results vs guidance history, openness and availability to meet with investors, etc.)

5. Accounting risk (independence of auditors, complicated and obscure accounting, etc.)

6. Bondholder risk (aggressive leverage or share buyback, debt financing of dividend, etc.)

An issuer that obtains a rating below 2 out of 5 on one of these criteria (or on the overall ESG score), will be excluded from the investable universe. This approach screens out over 30% of the initial universe.

08.3. Additional information. [Optional]


FI 09. Examples of ESG factors in screening process

09.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

As part of our environmental risk criteria, we look at upcoming regulations, potential fines, litigation provisions that were made (or not) and whether those are sufficient. Insufficient provisioning can be extremely damaging for companies and in specific cases even lead to bankruptcy. 

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

There are numerous examples showing that accounting risks, if they materialize, can be extremely damaging for a company. As part of our analysis, we look at whether there have been instances or fraud or accounting irregularities in the past (and if so how they have been handled by the company and whether management in charge at the time in still in place), how independent auditors are (fees paid for audit and non-audit missions, length of working relationship with the company) and how complicated accounting practices are (recurring exceptional items, complex consolidation of revenues).

09.2. Additional information.


FI 10. Screening - ensuring criteria are met

10.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening?
Norms-based screening

10.2. Additional information. [Optional]


(C) Implementation: Integration

FI 14. Integration overview

14.1. Describe your approach to integrating ESG into traditional financial analysis.

Sycomore AM has developed a proprietary ESG methodolody that allows us to store information, analyse, screen, score and monitor companies from an ESG standpoint. The ESG analysis and scoring tool is composed of 80 criteria. 100% of Sycomore AM's investment universe, that is approximately 700 companies, has been screened and the database is updated daily. The ESG team is mainly responsible for inputting ESG data in the database but the 11 other mainstream fund managers also input ESG information in the database and use relevant ESG information.

Sycomore Selection Credit, the SRI corporate bond fund, applies 6 negative screening criteria to exclude companies whose risks are too high. 

14.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

Corporate (non-financial)

Sycomore AM's ESG approach is applicable to investment grade, high yield and unrated bond issuers alike.

14.3. Additional information [OPTIONAL]


FI 15. Integration - ESG information in investment processes

15.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is integrated into security weighting decisions
ESG analysis is integrated into portfolio construction decisions
ESG analysis is a standard part of internal credit ratings or assessment
ESG analysis for issuers is a standard agenda item at investment committee meetings
ESG analysis is regularly featured in internal research notes or similar
ESG analysis is a standard feature of ongoing portfolio monitoring
ESG analysis features in all internal issuer summaries or similar documents
Other, specify

15.2. Additional information [OPTIONAL]


FI 16. Integration - E,S and G issues reviewed

16.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
Corporate (non-financial)

Environmental

Social

Governance

16.2. Please provide more detail on how you review E, S and G factors in your integration process.

Corporate (non-financial)

Sycomore AM has developed a proprietary ESG methodology that allows us to store information, analyse, screen, score and monitor companies from an ESG standpoint. The ESG analysis and scoring tool is composed of 80 criteria. 100% of Sycomore AM's investment universe, that is approximately 700 companies, has been screened and the database is updated daily. The ESG team is mainly responsible for inputting ESG data in the database but the 11 other mainstream fund managers also input ESG information in the database and use relevant ESG information.

All investment professionals share the same investment tool named SYCOVALO. In that regard, every investment professional is responsible for the ESG analysis of companies he or she covers. This ensures an on-going quality review by professionals whose analysis is directly impacted by ESG criteria and analysis. The Head of Sustainable & Responsible Investment approves all ESG scores.

16.3. Additional information.[OPTIONAL]


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