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ACTIAM

PRI reporting framework 2017

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ESG incorporation in actively managed listed equities

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
100 %
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.

ACTIAM uses a combination of strategies for its internally managed active funds. In 2015, a new strategy was developed which is currently in place. A combination of screening, integration and thematic strategies is implemented. Please see LEI 03.3 for an explanation of the incorporation approach. The reason for choosing this combination of strategies is that it allows us to exclude companies that we do not wish to be invested in because they violate international standards; to differentiate in the remaining companies with respect to their ESG performance (as only a minority of companies is excluded, yet there can be considerable differences in ESG performance of the remaining companies); and finally to downgrade or upgrade companies based on certain material themes, such as climate change, water, health and land.

The approach allows us to form an opinion about the sustainability of every entity in the portfolio and to combine this analysis with the financial analysis of the entity, thereby constructing a portfolio of companies that show both a high ESG as well as a high financial performance.

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

The active fund incorporates all three strategies. First, a screening is conducted based on the ACTIAM Fundamental Investment Principles. Companies that are excluded from investment can be found on our website: http://www.actiam.nl/en/sustainability/exclusions.

Second, we allocate an “ESG score”, which aggregates policy and conduct of several ESG indicators, a sector-based score and an analyst score, to all remaining companies in the universe.

And third, we add a thematic overlay based on material themes, such as climate change, water, health and land. The worst performers per theme are excluded from investment in the active fund, for example companies that are too dependent on coal mining and therefore a negative contributor to climate change. Companies that are considered positive contributors, such as renewable energy producers, are positively selected by upgrading their ESG score. Engagements can be set up in case these companies deliver a sustainable core product but are lagging in their ESG score due to, for example, a relatively low level of disclosure.

The ESG team and the Equity portfolio management team are jointly responsible for managing the integrated strategy.


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 

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

ACTIAM uses a specialised external data provider as a supplement to its own in-house research. For both screening and integration we use all the above mentioned sources.

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

04.4. Describe how you incentivise brokers.

ESG is a component of our broker evaluation process (as performed by the Equity portfolio management team) which determines the allocation of commissions to brokers. In 2014 we also determined a set of key ESG issues and shared these with the sell-side as suggestions for sell-side research topics as well as agenda topics in meetings with companies. Based on the added value of their research and the corporate meetings arranged,  as well as their overall ESG score our brokers are ESG-scored at the end of each year. The overall ESG score is an integral factor in the overall broker score which determines the overall allocation of commissions to brokers.

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]


(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

Our data provider executes an exclusionary screening every quarter, based on our Fundamental Investment Principles which incorporate Environmental, Social and Governance Issues. We exclude several products and activities, for instance nuclear weapons or riverine tailings disposal. Furthermore, for our active fund strategies specifically, an additional thematic overlay is added which leads to further exclusions of "worst offenders", based on product, activity or ESG practices. In addition, a sector-based score is integrated into the final ESG score, which downgrades companies that are active in certain sectors, such as the oil & gas sector, as well as an analyst score (positive or negative) which can be given by the ESG team.

Screened by

Description

Companies that deliver sustainable goods or services will receive an upgrade in their ESG score, based on the thematic overlay in the actively managed fund strategies. Furthermore, given some sectors are more sustainable than others, ACTIAM has developed sector scores into its ESG scoring methodology. Likewise to the negative/screening approach, the ESG team can add a positive analist score to upgrade companies.

These various (positive) screening methodologies result in higher ESG Scores for relevant individual companies.

Lastly, the mandates of our actively managed fund strategies stipulate optimising financial returns in combination with high portfolio ESG-scores relative to its benchmarks.  

Screened by

          Please check the list of other international mechanisms we consult as an appendix to our Fundamental Investment Principles on our website: http://www.actiam.nl/nl/duurzaamheid/Documents/Fundamental_Investment_Principles.pdf
        

Description

ACTIAM applies a norms-based screening to all its investments, including passive funds. Please see our Fundamental Investment Principles for companies (https://www.actiam.nl/nl/documenten/verantwoord/Documents/Fundamental_Investment_Principles_Companies.pdf) and sovereigns (https://www.actiam.nl/nl/documenten/verantwoord/documents/Responsible_Investment_Policy_Sovereigns.pdf) and exclusion list for more information.

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.

Screening criteria (Fundamental Investment Principles) are established by the in-house ESG team in close collaboration with our clients and are reviewed every quarter. The final decision to approve a change in the Fundamental Investment Principles is the responsibility of the ACTIAM Selection Committee. The ACTIAM Selection Committee meets on a quarterly basis and decides on the eligibility of investments and any revisions of the Fundamental Investment Principles. This decision and policy-making body comprises four members: the CEO, performing the role of Chair; the CIO; the Head of the ESG Research team; and an external expert who is also a Professor of Ethics. After each ACTIAM Selection Committee meeting clients are informed on the decisions made and newly excluded companies are communicated on our website and in our quarterly ESG report.


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]


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.

ACTIAM's governance is organised according to the ‘three lines of defence’- model. The first line (portfolio management and the ESG research team) is the risk owner and responsible for first line risk controls. Mandate restrictions are monitored automatically by the mandate compliance department (the 'second line') on a daily basis. In the event of a breach, the second line manager will investigate the cause of the breach as soon as the breach is discovered. In case of a passive breach (caused by external factors as f.i. market moves), portfolio management will realign the portfolio to the permitted bandwith. In case of an active breach (internal factors, like f.i. an excluded security is accidentally purchased),  portfolio management must sell the security immediately. The client will be informed about the event and will be compensated according to ACTIAM’s compensation policy to the extent any losses have arisen. Any profits remain with the client however.

08.3. Additional information.[Optional]

If the security is the outcome of a corporate action, the security will be sold when the corporate action is physically settled.

 


(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]

A combination of environmental and social themes is applied to our actively managed fund strategies, i.e. climate change, water, land, health and vitality, and living. ACTIAM identifies companies that contribute negatively and positively to these themes. The negative contributors are either ESG Score downgraded, or are excluded from investment in the actively managed fund strategies; the positive contributors receive an upgrade in their ESG score, thereby increasing the likelihood of being selected for investment.


(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]


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]


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.

          We apply our ESG score in the portfolio construction setting as one input in our overall company scores.
        

12.3. Describe how you integrate ESG information into portfolio construction

We apply our ESG score in the portfolio construction setting as one input in our overall company scores.

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

We apply our ESG score in the portfolio construction setting as one input in our overall company scores, in which the ESG score has a fixed weight.

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

          We apply our ESG score in the portfolio construction setting as one input in our overall company scores.
        

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

We apply our ESG score in the portfolio construction setting as one input in our overall company scores, in which the ESG score has a fixed weight.

12.5. Additional information.


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