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LocalTapiola Asset Management Ltd

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
100 %
Total actively managed listed equities 108%

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

Our RI process covers all direct equity investments, but differs for the investments based on our stock-picking model and for the investments based on our quantitative model.

In our stock-picking model the investment decisions are based on our in-house analysis. In this model we do not track any indices and our portfolios are quite concentrated – tracking error is not a limiting factor in our investment process and active shares for our portfolios are high. We are a long-term investor (our typical investment horizon spans over several years) and our aim is the best possible risk-adjusted return for our clients over long-term. Therefore, it is logical for us to fully integrate ESG analysis into our in-house company analysis and investment process. What does integration mean to us? We conduct ESG analysis as an integrated part of our investment analysis on all our targeted companies. The ESG analysis and investment analysis are conducted simultaneously by the responsible portfolio manager. For the ESG analysis we have predefined a set of questions and ESG issues that need to be looked into. These questions and issues were updated in 2016. Based on the ESG analysis we give each company an ESG score that ranges from excellent to passable. In scoring we also take into account specific features of the sectors and weigh these accordingly. The company specific scores are reviewed regularly and the distributions of the scores are published in our monthly Fund fact sheets or reported to clients on a quarterly basis. During the second half of 2016 we reviewed our ESG scores for all our investments as part of the updating of our ESG analysis framework. Risks identified in the ESG analysis are also taken into account in the company valuation for instance in the company discount rate and/or in the company risk premium. In our stock-picking model we do not outright exclude any sectors or companies from our investment universe based on ESG criteria. Also, being an Asset Manager (vs Asset Owner) with numerous clients with differing objectives, we do not exclude companies or sectors on ethical grounds. However, in client specific portfolios we can take into account e.g. clients’ own exclusion criteria. An important part of our investment and ESG analysis are regular meetings with the companies that we invest in. In the meetings with the company management we take the opportunity to address relevant company specific ESG issues. Those companies that have received a low score in our ESG analysis are actively contacted and encouraged to improve their actions in corporate responsibility and sustainability. If companies do not improve their sustainability performance within a reasonable timeframe we actively begin lowering the weight of the investment in the portfolio or sell the whole stake. In 2016 we also introduced a third party ESG database for our portfolio managers as a tool to provide support in the analysis. Mainly the database is used for better transparency on identifying the company-specific risks.

Our aim is not to invest only in the best-in-class companies. When we analyse a company, we identify the strengths and opportunities that development of a company's ESG activities can offer to its future financial performance. We also identify and assess weaknesses and threats arising from poor ESG management that influence the risk relating to the investment. We also actively encourage companies to improve their ESG performance.

In the equity investments that are based on our quantitative model we integrate RI in the investment process by using the third party ESG database. The ESG ratings given by the third party are utilized as one parameter of the total of five parameters in our quantitative model.

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 

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

Our main source of ESG and other information is public information provided by the companies, brokers and market information databases. In 2016 we introduced a third party ESG database for our portfolio managers to support our in-house ESG analysis and also in order to utilize the third party ESG ratings as a parameter in our quantitative model. We verify and supplement the publicly available information in regular meetings with the companies.

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

04.4. Describe how you incentivise brokers.

We regularly take up the issues about providing ESG analysis and integrating ESG analysis into our brokers' company analysis.

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]

Our portfolio managers are responsible for our engagement activities in our stock-picking model. This way we ensure the information derived from engagement is made available and fully integrated into our analysis and investment decisions. All company specific information, including engagements and discussions with the management, is saved in our analysis database and is available for all portfolio managers. Also, if we attend the AGMs on our clients' behalf, we use in-house staff, and the information of agenda and voting is made available.

Basically as ESG analysis is fully integrated in our investment decision-making, all relevant ESG issues including engagement activities are taken into consideration when making the investment decision.


(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]

In our stock-picking model, the company and ESG analysis are performed systematically, based on our in-house tool and updated regularly. In practice we have noticed that E and G part of the ESG analysis is typically better quantified and therefore easier to analyze and verify, whereas Social factors tend to be more dependent on qualitative assessment and data may be difficult to obtain.

In our quantitative model we use ESG ratings from a third party service provider as a parameter in the model. The third party rating takes into account the relevant E, S and G issues for each company based on the sectors and geographies the company operates in.


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


LEI 12. Aspects of analysis ESG information is integrated into (Private)


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