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RBC Global Asset Management

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
99.5 %
Percentage of active listed equity to which the strategy is applied
0.4 %
Percentage of active listed equity to which the strategy is applied
0.1 %
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.

We use integration as our primary ESG incorporation strategy since it is a comprehensive method that allows ESG risks and opportunities to be considered in the company specific context. As part of our integration efforts, we engage with companies and provide them with an opportunity to address ESG issues, which ultimately improves the long term, sustainable performance of our investments.

A combination of screening and integration is applied to our designated socially responsible strategies. These strategies have been specifically designed to screen out companies that manufacture products and/or provide services that socially responsible investors may wish to avoid. These strategies also employ a qualitative screen that assesses practices in a number of areas such as environment, employees, human rights, etc. In addition to these negative screens, integration is used to assess the remaining companies to ensure the relevant ESG factors are appropriately addressed as mentioned above.

In 2016 RBC GAM launched a global equity fossil fuel free strategy. This strategy employs a fossil free screen that eliminates fossil fuel producers from the portfolio, and integrates ESG factors.

In all instances when we control the investment policy for a portfolio, we will not knowingly invest in companies whose business activities would contravene the prohibitions contained in the Anti-Personnel Landmines Convention or the Convention on Cluster Munitions.

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

See description in LEI 03.2.


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.

We have engaged a number of external research firms to provide specialized ESG research which we use in conjunction with other forms of analysis. This research provides us with information on ESG risks and opportunities relevant to specific issuers, countries and industries and also provides us with broad-based thematic research relevant to general ESG themes. External research firms also provide analysis and ratings, which are used in conjunction with our internal analysis. All research, analysis and ratings are available to investment managers.

A screened stock list provided by an ESG research provider is used for our designated socially responsible strategies where negative screening is applied.

For our global equity fossil fuel free thematic strategy, the screen is managed in-house by the portfolio manager.

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

04.4. Describe how you incentivise brokers.

Some of our investment teams are more systematic in incentivizing brokers to provide ESG research. For example, our Global Equity team has a process whereby portfolio managers can vote on which research to purchase. These portfolio managers specifically allocate their votes towards ESG focused research. Other teams are more focused on specialized ESG research and their own proprietary ESG-related research.

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 designated socially responsible strategies have negative screens for alcohol, gaming, military weapons, pornographic materials, nuclear power and tobacco products. Most of the exclusionary screening criteria are based on a threshold of involvement that is defined in terms of percentage of annual revenues. Any company that meets any of the exclusionary screening criteria will be placed on a prohibited securities list and will not be eligible for inclusion in our designated socially responsible strategies. For our fossil fuel free strategy, we exclude all companies that extract, process, and transport fossil fuels.

When we control the investment policy for a portfolio, we will not knowingly invest in companies whose business activities would contravene the prohibitions contained in the Anti-Personnel Landmines Convention or the Convention on Cluster Munitions.

Where there are full economic sanctions that prohibit any financial dealings with a foreign state, including investment in entities operating under the authority of the foreign state, we will not invest in securities that fall within the sanctions. Where sanctions have been imposed against foreign countries that do not prohibit financial dealings we will identify and assess any risk and consider whether the investment would still be in the best interests of our clients.

Screened by

Description

Qualitative screening criteria are applied to our designated socially responsible strategies where it is possible for a company to perform both positively and negatively. The application of qualitative criteria involves evaluating each company's overall performance, both positive and negative, in each issue area and balancing strengths and concerns. Our qualitative screening criteria include: community, corporate governance, employee relations, environment, human rights and product/business practices. In the specific areas of occupational health and safety and environmental performance, we apply the qualitative screening criteria using a best-of-sector approach, where each company's record is evaluated relative to that of its industry counterparts. The standards for performance are best industry practices.

Screened by

          Anti-Personnel Landmines Convention and Convention on Cluster Munitions
        

Description

As described above, when we control the investment policy for a portfolio, we will not knowingly invest in companies whose business activities would contravene the prohibitions contained in the Anti-Personnel Landmines Convention or the Convention on Cluster Munitions.

These exclusions apply to direct equity and corporate credit holdings, but do not apply to derivatives or other index exposures where our exposure is indirect and outside of our control and which would not meaningfully impact the ability of these companies to obtain capital.

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.

The principles for our screened strategies were developed in consultation with our ESG service providers. The criteria have been reviewed and no substantial changes have been made since inception. If substantial changes are made, we would provide detailed disclosure to our investors describing those changes in advance of those changes being made.


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]

External research and data used to identify companies to be excluded/included is subject to an internal review by RBC GAM staff.


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

          Our screened strategy holdings are periodically sent to one of our ESG research providers for review.
        

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

Should there be a breach of fund screening criteria, ineligible securities would be sold immediately and our error review process would be activated, which includes an assessment of the root cause of the error and taking appropriate steps to prevent similar errors in the future.  The client would also be compensated for any loss incurred as a result of the error.

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]

RBC GAM launched a global equity fossil fuel free strategy in 2016.  This is the first sustainability themed strategy we have launched. The strategy will not invest in issuers or vehicles that include issuers directly involved in extracting, processing or transporting coal, oil or natural gas, or issuers included in the Carbon Underground 200.


(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]

Our investment teams are at varying stages in developing their ESG integration processes. All of our investment teams have access to comprehensive ESG research and are incorporating ESG factors into their investment decision making. We have integrated ESG scores into our standard and proprietary trade management software/applications. 

Our Global Equity and Emerging Market Equity teams fully integrate ESG factors in a disciplined, fundamental investment process. Both teams use a robust analysis process and keep records that capture how ESG information and research was incorporated into investment decisions.


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

The methods used to integrate ESG information into portfolio construction depend on the particular investment team. For example, our Emerging Markets Equity Team uses a scorecard with a wide range of questions as the prime determinant of portfolio weights. ESG questions comprise a significant percentage of the scorecard. Our Global Equity team integrates ESG factors in their portfolio construction. Some of our Canadian equity teams have developed checklists to identify material risks, and these factors are used as a guide to determine materiality of ESG factors.

Our SRI strategies integrate ESG factors as part of the portfolio construction through the selection of qualifying securities.   

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

Some of our investment teams are more advanced in adjusting the income forecast or valuation based on ESG factors. For example, our Emerging Markets Equity team takes into account sustainability factors, which may include, for example, companies that invest in infrastructure or research and development, and may adjust income statements to capitalize on these investments. In addition, the Emerging Markets Equity Team makes adjustments where margins are artificially increased in the short-term by factors such as a low tax rate, squeezing suppliers or employees, or overcharging customers. Our Global Equity team adjusts factors in the income statement depending on its scenario 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

Please see response above. 

12.5. Additional information.


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