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Sycomore Asset Management

PRI reporting framework 2017

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (A) Implementation: Screening

(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]


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