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Sycomore Asset Management

PRI reporting framework 2017

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 03. Percentage of each incorporation strategy

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
74 %
Percentage of active listed equity to which the strategy is applied
23 %
Percentage of active listed equity to which the strategy is applied
3 %
Total actively managed listed equities 100%

03.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

In the investment process for all of Sycomore AM's funds, the investment team follows an integration strategy as an ESG risk premium adjust the beta of all the companies in the investment universe. Sycomore AM firmly believes that ESG analysis adds value as companies with a good understanding of ESG impacts and a strong integration of sustainability in their strategy are better placed to manage risks and benefit from related opportunies.

Sycomore Selection Responsable is Sycomore AM's main SRI equity fund with over 700 M€ AUM. Like most other SRI investment portfolios at Sycomore AM, it falls under the ESG integration and screening strategies:

1. ESG criteria are integrated to the valuation and portfolio construction process like for all other funds,

2. The fund has its own screening criteria that exclude companies with poor environmental performance, accounting risks and poor working conditions, and select companies that create jobs, protect minority shareholders and offer products and services that positively contribute to a healthy environment.

Sycomore Happy@Work and Sycomore Eco Solutions are thematic funds and combine ESG integration and screening strategies, which are common to all SRI funds at Sycomore, with thematic strategies based on human capital and the ecological and energy transition respectively. 

 

 

03.3. Where assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]


LEI 04. Type of ESG information used in investment decision

04.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

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 

Indicate who provides this information 

          We may use a network of experts (Third Bridge) to talk to company stakeholders (employees, clients, suppliers, etc.).
        

Indicate who provides this information 

04.2. Provide a brief description of the ESG information used, highlighting any differences of 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, institutions' reports, calls with various experts, NGO publications, newspapers, social networks, etc.).

04.3. Indicate if you incentivise brokers to provide ESG research.

04.4. Describe how you incentivise brokers.

Every year, the fund management team ranks brokers it works with on a number of issues. In the broker evaluation model, there is a specific score allocated to ESG research. Hence, brokerage fees also depend on the quality of ESG research they provide.

04.5. Additional information.[Optional]


LEI 05. Information from engagement and/or voting used in investment decision-making

05.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

05.2. Additional information. [Optional]

Sycomore AM works with ISS to cast its votes. Portfolio managers have access to the platform and are regularly informed and consulted on votes at companies held in their portfolio. 

Sycomore AM developed an engagement database whereby all engagement-related information is tracked and stored.


(A) Implementation: Screening

LEI 06. Types of screening applied

06.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

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

It also excludes any investments in companies involved in controversial weapons. 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.

3. Negative screening for Sycomore Selection Responsable

Sycomore AM's main SRI equity fund excludes companies that do not meet the following ESG requirements:

- E: minimum environmental performance (water and energy consumption, greenhouse gases emissions, waste, energy efficiency...)

- S: minimum working conditions (average salary, training, absenteism, turnover, working accidents, social climate...)

- G: limited accounting risks (quality of financial statements, auditors' independence, accounting irregularities...)

- ESG: a minimum ESG score

We require a minimum grade of 2.5 out of 5 on every criterion for a company to enter our investment universe.

Screened by

Description

Sycomore AM's main SRI equity fund also selects companies that offer sustainable development opportunities:

-  E: good environmental positioning of products and services (recycling, energy efficiency, sustainable building, sustainable transport...)

- S: job creation (positive average growth of the workforce over the past 3 years)

- G: protection of minority shareholders (absence of poison pills, absence of multiple classes of shares or voting rights, voting caps...)

Also, it is worth noting that for our thematic funds (Sycomore Eco Solutions and Sycomore Happy@Work), we screen our investment universe to select companies that are well positioned to benefit from the ecological and energy transition, and from the well-being of employees and the strong integration of human capital in company strategy.

Screened by

Description

Sycomore AM's SRI funds will not invest in companies that contravene international norms.

06.2. Describe how the screening criteria are established, how often the criteria are reviewed and how you notify clients and/or beneficiaries when changes are made.

For our main SRI fund, the negative and positive selection criteria have been established to help the team:

1. Identify companies showing ESG risks

2. Identify companies showing sustainable development opportunities

From the first implementation of this screening strategy in 2011 until now, we never changed the screening criteria. However, we are, of course, regularly reviewing how companies score on these different criteria as we are updating our database daily. In addition, we carry out every 2 years a complete ESG review of all investee company.


LEI 07. Processes to ensure screening is based on robust analysis

07.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

07.2. Additional information. [Optional]

ESG analysis of Sycomore AM's investment universe is led by the 6-people ESG team with the input of the other 13 analysts/fund managers. 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. In addition, the Head of Sustainable & Responsible Investment approves all ESG scores.


LEI 08. Processes to ensure fund criteria are not breached

08.1. Indicate which processes your organisation uses to ensure fund criteria are not breached

08.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

Should a company held in one of Sycomore AM's SRI funds breach one or more of the fund's ESG criteria, the fund managers would sell the stock without delay (maximum 4 weeks). However, we have implemented various level of controls to prevent such events from happening.

In the case of a severe controversy (level 3 out of 3) affecting one of our SRI holdings, the fund managers would immediately sell the stock. Here are a few examples of such divestments, specifically because of controversies: Sonova (March 2011), Standard Chartered (July 2012), Bull (December 2012), Alstom (2013), Sanofi (2014), BNP Paribas (2014), Volkswagen (2016).

Moreover, we have a specific portfolio construction tool to screen companies that pass our exclusion and selection criteria and thus are eligible to our SRI funds.

08.3. Additional information.[Optional]


(B) Implementation: Thematic

LEI 09. Types of sustainability thematic funds/mandates

09.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

09.2. Describe your organisation’s processes for sustainability themed funds. [Optional]

Sycomore Eco Solutions

We concentrate on businesses and sectors that interact strongly with the environment and analyse the environmental impact of each company's products and services. Therefore, Sycomore Eco Solutions focuses on five key areas: mobility and transport, the circular economy, renovation and construction, energy production and management, and ecosystem-related businesses. Our proprietary methodology relies on an environmental quantification process that measures, for each business, the extent to which companies align with the energy and environmental transition. We only invest in companies that have more than 10% of their revenues that actively contribute to this transition.

Also, the fund systematically steers clear of businesses that destroy natural capital. The investment approach is based on strong exclusion criteria (coal, intensive farming, minimum ESG rating...) and on a strategic stock selection process.

Sycomore AM also set up a strategic environment committee of experts with academic, institutional, corporate and NGO backgrounds. This committee is a venue for members to exchange critical and constructive views on complex environmental issues.

 

Sycomore Happy@Work

Sycomore Happy@Work was launched in 2015. It aims to invest in companies that recognise employee engagement and well-being as a key performance driver (several studies indicate that well-being at work reduces absenteeism, work accidents, turnover and drives creativity, engagement, sales and productivity).

We have identified five key pillars that enable employee happiness and engagement, at an individual level: equity, autonomy, sense of purpose and meaning, evolution and development and a good working environment.

A full assessment includes:

- an analysis of how companies perform on the five pillars and how it is organised to manage human capital,

- an assessment of other ESG metrics, since a minimum ESG score is required for a company to be eligible to the fund.

It is based on:

- public documents and meetings with operational management (Human Resources teams for example) where we seek both quantitative and qualitative information,

- on-site visits and employees’ interviews when possible for small companies when representative and relevant,

- interviews of experts and ex-employees,

- anonymous testimonies on specialized websites,

- controversies assessments related to human capital management.


(C) Implementation: Integration of ESG issues

LEI 10. Review ESG issues while researching companies/sectors

10.1. Indicate if E, S and G issues are reviewed while researching companies and/or sectors in active strategies.

ESG issues

Coverage/extent of review on these issues

Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

10.2. Additional information. [Optional]

Sycomore AM has developed a proprietary methodology to store information, analyse, screen, score and monitor companies from an ESG standpoint. The SPICE (Suppliers & Society, People, Investors, Clients and Environment) analysis and scoring tool is composed of 80 criteria. The ESG team is mainly responsible for inputing ESG data in the database but the other mainstream fund managers also input ESG information in the database and use relevant ESG information.


LEI 11. Processes to ensure integration is based on robust analysis

11.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

11.2. Describe how ESG information is held and used by your portfolio managers.

11.3. Additional information.[Optional]

Please see previous information provided on Sycomore AM's internal database where all financial and extra-financial information are disclosed.


LEI 12. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

12.1. Indicate which aspects of investment analysis you integrate ESG information into.

12.2a. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

12.3. Describe how you integrate ESG information into portfolio construction

Sycomore AM integrates ESG criteria across all its investments, according to the following 3-step approach:

1. Each company’s beta is automatically adjusted in our valuation model according to the stock’s ESG and fundamental analysis. It can be adjusted from -20% to +20% depending on the risks and opportunities we identify in our analysis.

2. If a company has a poor ESG and fundamental analysis score, we will require a higher margin of safety.  

3. ESG and fundamental analysis has a direct impact on portfolio construction as it adjusts the target weight of each stock in the portfolio.

For our SRI funds, a specific portfolio construction tool allows us to screen companies in our initial investment universe that respect all our exclusion and selection criteria.

12.4a. Describe the methods you have used to adjust the income forecast / valuation tool

As described above, each company’s beta is automatically adjusted in our valuation model according to the stock’s ESG and fundamental analysis. It can be adjusted from -20% to +20% depending on the risks and opportunities we identify in our analysis.

12.2b. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

12.4b. Describe the methods you have used to adjust the income forecast / valuation tool

As described above, each company’s beta is automatically adjusted in our valuation model according to the stock’s ESG and fundamental analysis. It can be adjusted from -20% to +20% depending on the risks and opportunities we identify in our analysis.

12.5. Additional information.


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