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Sparinvest S.A.

PRI reporting framework 2017

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income

ESG incorporation in actively managed fixed income

Implementation processes

FI 04. Incorporation strategies applied

04.1. 以下を記載してください。 (1)組織でアクティブ運用する債券投資について、どのESG組み入れ戦略や組み合わせを使用しているか(2)各戦略が適用されるアクティブ運用債券投資合計の割合(+/- 5%)

SSA
0 スクリーニングのみ
0 テーマのみ
0 統合のみ
100 スクリーニング + 統合戦略
0 テーマ + 統合戦略
0 スクリーニング + テーマ戦略
0 3つの戦略すべての組み合わせ
0 組み入れ戦略を適用していない
100%
社債(金融)
0 スクリーニングのみ
0 テーマのみ
0 統合のみ
100 スクリーニング + 統合戦略
0 テーマ + 統合戦略
0 スクリーニング + テーマ戦略
0 3つの戦略すべての組み合わせ
0 組み入れ戦略を適用していない
100%
社債(非金融)
0 スクリーニングのみ
0 テーマのみ
0 統合のみ
100 スクリーニング + 統合戦略
0 テーマ + 統合戦略
0 スクリーニング + テーマ戦略
0 3つの戦略すべての組み合わせ
0 組み入れ戦略を適用していない
100%
証券化商品
0 スクリーニングのみ
0 テーマのみ
0 統合のみ
100 スクリーニング + 統合戦略
0 テーマ + 統合戦略
0 スクリーニング + テーマ戦略
0 3つの戦略すべての組み合わせ
0 組み入れ戦略を適用していない
100%

04.2. 特定のESG組み入れ戦略を選択している主な理由と、使用する戦略の組み合わせを説明してください。

Our fixed income fund range includes active fundamental bond-selecting funds investing in corporates, government and securitized bonds. In addition, we have a single passive securitized bonds strategy .

ALL FUNDS: All funds (active and passive) apply an exclusionary screen for controversial weapons and securities in breach of EU sanctions.

ACTIVE FUNDAMENTAL FUNDS: In our active fundamental funds, our aim is to understand the issuers short and long-term ability to service its debt obligations, in order to protect the principal of our investments. Indeed, we aim to assess the downside risk before the upside potential. Consequently, issues which may impact companies in the short or long-term are considered highly relevant to our analysis, and this includes many environmental, social and governance issues. As such, we integrate ESG considerations into our security analysis, alongside other fundamental factors through our 'red flags' investment checklist process. Although our investment horizon is finite and sometimes short-term due to bonds maturing, we acknowledge the impact of more long-term ESG initiatives. We also engage with companies as deemed appropriate (see section on engagement).

In addition to the above, our ethical funds strategies are subject to screening based on client needs and values. ( see section on screening).

 

04.3. 補足情報。 [任意]


FI 05. ESG issues and issuer research (Private)


FI 06. Processes to ensure analysis is robust

06.1. 組織のESG調査プロセスの堅牢性を確保する方法を記載してください。

06.2. ESG情報または分析を投資チーム内で共有する方法を記載してください。

06.3. 補足情報。[任意]


(A) Implementation: Screening

FI 07. Types of screening applied

07.1. 実施するスクリーニングの種類を記載してください。

SSA
社債(金融)
社債(非金融)
証券化商品
ネガティブ/ 排他的スクリーニング
ポジティブ/業界最高のスクリーニング
基準に基づくスクリーニング

07.2. 組織内でアクティブ運用している債券に適用するスクリーニングのアプローチを記載してください。

Across all funds, we exclude companies involved in banned weapons and securities in breach of EU sanctions for legal reasons. (We note that on occasion, certain sanctions may have the effect of excluding specific countries).

All funds are screened to ensure that they do not invest in companies manufacturing weapons of mass destruction (biological weapons, chemical weapons or nuclear weapons outside the nuclear non-proliferation treaty.) The screen also excludes manufacturers of weapons banned under international conventions such as the Oslo and Ottawa conventions - which prohibit the use and dissemination of cluster munitions and anti-personnel mines. The basis for such exclusions is a banned weapons analysis performed and updated on a daily basis by our screening services provider. We have zero tolerance of companies assessed as being manufacturers of such weapons and these are noted in an exclusion list used for pre-trade compliance checks, and daily screenings of the portfolios. Portfolio managers are notified of any relevant changes to the exclusion status. Any breaches will result in the security being divested as soon as reasonably practicable.

For our ethical strategies we apply further ESG-related screenings through international norms and banned sector screenings (see section on ESG-based negative screening).

07.3. 補足情報。 [任意]


FI 08. Negative screening - overview and rationale

08.1. ネガティブスクリーニングを実行した理由を明示してください。

SSA

SSA

社債(金融)

社債(金融)

社債(非金融)

社債(非金融)

証券化商品

証券化商品

08.2. 投資ユニバースから発行体についてESGベースのネガティブスクリーニングを行うアプローチについて説明してください。

Our ESG-based negative screening consists of a further screening for our ethical strategies in addition to those legally required and detailed in FI 07.2.

Where we provide funds with an additional focus on ethical overlay, this is based on negative screening to exclude companies from the investment universe or investment shortlist, on certain specific grounds. The exclusionary criteria for these funds result from ongoing consultation with clients, but are broadly categorized as norm-based and sector-based criteria:

  • A norm-based screen for violations of global norms: environmental protection, human rights, labor standards and anti-corruption.
  • A sector-based screen for companies operating within sectors such as: alcohol, tobacco, gambling, pornography, weapons, thermal coal and oil sands.

Note that our Norm-Based screening is a negative exclusionary screen. It assesses companies' adherence to international norms for human rights, the environment, labor standards and anti-corruption. It adheres to the UN Global Compact Principles.

08.3. 補足情報。[任意]

We comply with legal requirements for exclusions but we also comply with our clients' wishes, particularly with regard to ethical strategies.


FI 09. Examples of ESG factors in screening process (Private)


FI 10. Screening - ensuring criteria are met

10.1. 債券投資においてファンドスクリーニングの基準に違反がないことを確認するために組織が使用しているシステムを記載してください。

スクリーニングの種類
ネガティブ/排他的スクリーニング​

other description

          Data used for the overarching screening criteria is updated on an on-going basis to capture new exclusions as they arise.
        
基準に基づくスクリーニング​

other description

          Data used for the screening criteria is updated with ad-hoc alerts from the service provider if there is a norms issue.
        

10.2. 補足情報。 [任意]

Sector-based screening checks are performed to ensure that issuers meet screening criteria on a semi-annual basis. Automated IT systems prevent our portfolio managers from investing in excluded issuers or bonds that do not meet the sector screening criteria. Audits of fund holdings are undertaken regularly by internal audit or compliance functions.


(C) Implementation: Integration

FI 14. Integration overview

14.1. ESGを従来の財務分析に統合するアプローチを説明してください。

The formal consideration of environmental, social and governance (ESG) risk factors has been fully integrated into the investment process of the Group's Corporate Value Bonds Team. Specifically, ESG risk considerations are included in the analysis phase of the Value Bonds investment process and taken into account in every on-going investment update. This is designed to strengthen portfolios by minimizing exposure to potential ESG downside risk. The investment process for Sparinvest's range of value bond portfolios is essentially that ESG factors are incorporated into the investment process on an equal footing with traditional financial data; and, as with the financial key metrics, environmental, social and governance issues are part of the investment process 'check list'. All potential targets must meet the criteria of the check list before becoming eligible for investment.

14.2. 投資する債券の各種類に対してESG統合アプローチをどのように調整するのか説明してください。

SSA

From a fiduciary perspective, we believe that the G part of ESG analysis is of paramount importance when investing in Sovereigns because a well-governed country is more likely to establish a sound and long-term financial balance, hence also the basis for repaying its debts. Good governance also is essential to the successful development of an economy, as well as its ability to protect its citizens and environment, therefore good governance permits good ESG behaviour. On a country level we believe the all the factors to be very closely correlated, but with the main driver being the 'G'.

The formal consideration of governance risk factors is integrated in - and considered a vital part of - the investment process for Sparinvest's range of passive funds investing in sovereigns.

In previous internal studies, Sparinvest has found that the World Governance Indicators have explanatory powers regarding historic returns on sovereigns. Therefore the World Governance Indicators are used as input. More than 200 countries are analysed annually on key metrics, focusing on government/regulatory governance and human rights ('S') in particular. Specifically, countries are ranked according to:

  • Voice and Accountability,
  • Political Stability and Absence of Violence,
  • Government Effectiveness,
  • Regulatory Quality,
  • Rule of Law,
  • Control of Corruption.

However, the World Governance Indicators are retrospective and there is a built in time-lag in the data. Therefore, in order to keep up to date with more immediate potential sovereign risk factors, Sparinvest makes adjustments on the basis of other, more forward looking, data - including broker and Press reports - which cover the same governance factors, as well as elections and political cycles. Such factors are included alongside other relevant risk measures when evaluating the credit spread.

社債(金融)

In its Responsible Investment policy, Sparinvest does not differentiate between financial and non-financial corporate bonds. We apply the same methodical investment process to all our corporate bond investments. We aim to strengthen portfolios by minimizing exposure to downside risk. Thus, consideration of environmental, social and governance issues is part of our fundamental credit analysis process. Our customized 'red flags'- investment check list includes ESG metrics alongside traditional financial key metrics.

We believe that potential governance problems form the most severe risk to credit investors, and thus it is our clear fiduciary duty to focus on identifying these prior to investment. The 'red flags' are designed to pick up - for example - allegations of fraud, frequent/recent changes of management, board members or of auditors. Our conservative approach to risk means that even where such information is as yet unverified, it is still taken into consideration and duly noted on case files.

We prioritize governance risks for both fiduciary and practical reasons. Given the shorter term investment period typically involved with Corporate Bonds, and the fact that bondholders do not have a right to vote on Management proposals at AGMs, there is potentially less time available and less leverage available for bond investors to influence portfolio companies. For this reason, Sparinvest believes that it is prudent to consider adequate governance as a basic prerequisite for a company to be able to focus on and improve its environmental and social credentials.

This does not mean that we ignore research information on environmental and social issues. Indeed, one of our checklist items requires that all 3rd party ESG research information should have been analyzed prior to investment. This has resulted in target companies failing our adequate compensation-for-risk requirement on grounds other than governance risk. It should also be noted that our corporate bonds engagement activities cover environmental, social and governance matters.

社債(非金融)

In its Responsible Investment policy, Sparinvest does not differentiate between financial and non-financial corporate bonds. We apply the same methodical investment process to all our corporate bond investments. We aim to strengthen portfolios by minimizing exposure to downside risk. Thus, consideration of environmental, social and governance issues is part of our fundamental credit analysis process. Our customized 'red flags'- investment check list includes ESG metrics alongside traditional financial key metrics.

We believe that potential governance problems form the most severe risk to credit investors, and thus it is our clear fiduciary duty to focus on identifying these prior to investment. The 'red flags' are designed to pick up - for example - allegations of fraud, frequent/recent changes of management, board members or of auditors. Our conservative approach to risk means that even where such information is as yet unverified, it is still taken into consideration and duly noted on case files.

We prioritize governance risks for both fiduciary and practical reasons. Given the shorter term investment period typically involved with Corporate Bonds, and the fact that bondholders do not have a right to vote on Management proposals at AGMs, there is potentially less time available and less leverage available for bond investors to influence portfolio companies. For this reason, Sparinvest believes that it is prudent to consider adequate governance as a basic prerequisite for a company to be able to focus on and improve its environmental and social credentials.

This does not mean that we ignore research information on environmental and social issues. Indeed, one of our checklist items requires that all 3rd party ESG research information should have been analyzed prior to investment. This has resulted in target companies failing our adequate compensation-for-risk requirement on grounds other than governance risk. It should also be noted that our corporate bonds engagement activities cover environmental, social and governance matters.

証券化商品

Sparinvest’s investments in covered/securitized bonds is currently restricted to a universe consisting entirely of Nordic covered bonds, as well as government bonds. These issuers are subject to rigorous regulatory requirements and strong governance systems operating in nations with strong environmental and social legislation. The majority of the securitized bonds held are part of the Danish covered bond system.

The Danish covered bond system is perceived as the most sustainable method for financing property purchase yet invented. In the wake of the sub-prime lending induced crisis of 2007-8 it was held up as a shining example of what a well-conducted mortgage market should look like. In more than two centuries of existence, there has never been a default on a Danish mortgage bond - which is probably attributable to the following factors:

Any entity wishing to issue mortgages in Denmark must meet rigorous regulatory requirements. Mortgage issuers are required to retain all the credit risk on their own books and to perform the servicing functions. Mortgages are funded by the issuance of transparent, standardized bonds, creating a large and liquid market that offers considerable attractions for risk averse investors in search of decent returns. Under the 'Balance Principle', every Danish mortgage is instantly converted into a security, valued at same amount, and the two remain interchangeable at all times. This is especially relevant for 30-year callable mortgage loans that homeowners can retire either by paying them off at par, or by buying an equivalent face amount of bonds at market price.

Because the value of homes, and the associated mortgage bonds, tend to move in the same direction, homeowners have some protection of their equity. In other words, if home prices decline as a result of higher interest rates, the amount that the homeowner must spend to retire a mortgage decreases because the bonds can be bought at lower prices.

Regardless of the above, we still conduct the same detailed and exhaustive assessment of the issuers standards and procedures in dealing with ESG related issues.

14.3. 補足情報。 [任意]


FI 15. Integration - ESG information in investment processes

15.1. ESG情報が、通常、投資プロセスの一部としてどのように使用されるのか記載してください。

当てはまるものをすべて選択してください
SSA
社債(金融)
社債(非金融)
証券化商品​
ESG分析をファンダメンタル分析に組み込んでいる
ESG分析を証券ウェイト判断に組み込んでいる
ESG分析をポートフォリオ構築判断に組み込んでいる
ESG分析は組織内の信用格付けまたは評価の標準要素になっている
発行体のESG分析が、投資委員会の標準議題になっている
組織内の調査レポートまたは同様文書で定期的にESG分析が取り上げられる
ESG分析は、進行中のポートフォリオ監視の標準項目に入っている
ESG分析は、すべての組織内の発行体概要または同様文書に含まれる
その他(具体的に記載してください)

15.2. 補足情報 [任意]


FI 16. Integration - E,S and G issues reviewed

16.1. 組織の統合プロセスでESG問題をどのように検討するか示してください。

E(環境)
S(社会)
G(ガバナンス)
SSA

Environmental

Social

Governance

社債(金融)

Environmental

Social

Governance

社債(非金融)

Environmental

Social

Governance

証券化商品

Environmental

Social

Governance

16.2. 組織の統合プロセスでE/S/G要因を検討する方法を詳しく説明してください。

SSA

From a fiduciary perspective, we believe that the G part of ESG analysis is of paramount importance when investing in Sovereigns because a well-governed country is more likely to establish a sound and long-term financial balance, hence also the basis for repaying its debts. Good governance also is essential to the successful development of an economy, as well as its ability to protect its citizens and environment, therefore good governance permits good ESG behaviour. On a country level we believe the all the factors to be very closely correlated, but with the main driver being the 'G'.

The formal consideration of governance risk factors is integrated in - and considered a vital part of - the investment process for Sparinvest's range of passive funds investing in sovereigns.

In previous internal studies, Sparinvest has found that the World Governance Indicators have explanatory powers regarding historic returns on sovereigns. Therefore the World Governance Indicators are used as input. More than 200 countries are analysed annually on key metrics, focusing on government/regulatory governance and human rights ('S') in particular. Specifically, countries are ranked according to:

  • Voice and Accountability,
  • Political Stability and Absence of Violence,
  • Government Effectiveness,
  • Regulatory Quality,
  • Rule of Law,
  • Control of Corruption.

However, the World Governance Indicators are retrospective and there is a built in time-lag in the data. Therefore, in order to keep up to date with more immediate potential sovereign risk factors, Sparinvest makes adjustments on the basis of other, more forward looking, data - including broker and Press reports - which cover the same governance factors, as well as elections and political cycles. Such factors are included alongside other relevant risk measures when evaluating the credit spread.

社債(金融)

In its Responsible Investment policy, Sparinvest does not differentiate between financial and non-financial corporate bonds. We apply the same methodical investment process to all our corporate bond investments. We aim to strengthen portfolios by minimizing exposure to downside risk. Thus, consideration of environmental, social and governance issues is part of our fundamental credit analysis process. Our customized 'red flags'- investment check list includes ESG metrics alongside traditional financial key metrics.

We believe that potential governance problems form the most severe risk to credit investors, and thus it is our clear fiduciary duty to focus on identifying these prior to investment. The 'red flags' are designed to pick up - for example - allegations of fraud, frequent/recent changes of management, board members or of auditors. Our conservative approach to risk means that even where such information is as yet unverified, it is still taken into consideration and duly noted on case files.

We prioritize governance risks for both fiduciary and practical reasons. Given the shorter term investment period typically involved with Corporate Bonds, and the fact that bondholders do not have a right to vote on Management proposals at AGMs, there is potentially less time available and less leverage available for bond investors to influence portfolio companies. For this reason, Sparinvest believes that it is prudent to consider adequate governance as a basic prerequisite for a company to be able to focus on and improve its environmental and social credentials.

This does not mean that we ignore research information on environmental and social issues. Indeed, one of our checklist items requires that all 3rd party ESG research information should have been analyzed prior to investment. This has resulted in target companies failing our adequate compensation-for-risk requirement on grounds other than governance risk. It should also be noted that our corporate bonds engagement activities cover environmental, social and governance matters.

社債(非金融)

In its Responsible Investment policy, Sparinvest does not differentiate between financial and non-financial corporate bonds. We apply the same methodical investment process to all our corporate bond investments. We aim to strengthen portfolios by minimizing exposure to downside risk. Thus, consideration of environmental, social and governance issues is part of our fundamental credit analysis process. Our customized 'red flags'- investment check list includes ESG metrics alongside traditional financial key metrics.

We believe that potential governance problems form the most severe risk to credit investors, and thus it is our clear fiduciary duty to focus on identifying these prior to investment. The 'red flags' are designed to pick up - for example - allegations of fraud, frequent/recent changes of management, board members or of auditors. Our conservative approach to risk means that even where such information is as yet unverified, it is still taken into consideration and duly noted on case files.

We prioritize governance risks for both fiduciary and practical reasons. Given the shorter term investment period typically involved with Corporate Bonds, and the fact that bondholders do not have a right to vote on Management proposals at AGMs, there is potentially less time available and less leverage available for bond investors to influence portfolio companies. For this reason, Sparinvest believes that it is prudent to consider adequate governance as a basic prerequisite for a company to be able to focus on and improve its environmental and social credentials.

This does not mean that we ignore research information on environmental and social issues. Indeed, one of our checklist items requires that all 3rd party ESG research information should have been analyzed prior to investment. This has resulted in target companies failing our adequate compensation-for-risk requirement on grounds other than governance risk. It should also be noted that our corporate bonds engagement activities cover environmental, social and governance matters.

証券化商品

Sparinvest’s investments in covered/securitized bonds is currently restricted to a universe consisting entirely of Nordic covered bonds, as well as government bonds. These issuers are subject to rigorous regulatory requirements and strong governance systems operating in nations with strong environmental and social legislation. The majority of the securitized bonds held are part of the Danish covered bond system.

The Danish covered bond system is perceived as the most sustainable method for financing property purchase yet invented. In the wake of the sub-prime lending induced crisis of 2007-8 it was held up as a shining example of what a well-conducted mortgage market should look like. In more than two centuries of existence, there has never been a default on a Danish mortgage bond - which is probably attributable to the following factors:

Any entity wishing to issue mortgages in Denmark must meet rigorous regulatory requirements. Mortgage issuers are required to retain all the credit risk on their own books and to perform the servicing functions. Mortgages are funded by the issuance of transparent, standardized bonds, creating a large and liquid market that offers considerable attractions for risk averse investors in search of decent returns. Under the 'Balance Principle', every Danish mortgage is instantly converted into a security, valued at same amount, and the two remain interchangeable at all times. This is especially relevant for 30-year callable mortgage loans that homeowners can retire either by paying them off at par, or by buying an equivalent face amount of bonds at market price.

Because the value of homes, and the associated mortgage bonds, tend to move in the same direction, homeowners have some protection of their equity. In other words, if home prices decline as a result of higher interest rates, the amount that the homeowner must spend to retire a mortgage decreases because the bonds can be bought at lower prices.

Regardless of the above, we still conduct the same detailed and exhaustive assessment of the issuers standards and procedures in dealing with ESG related issues.

16.3. 補足情報。 [任意]


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