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Loomis, Sayles & Company, L.P.

PRI reporting framework 2018

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities

ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. 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
95 %
Percentage of active listed equity to which the strategy is applied
5 %
Total actively managed listed equities 100%

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

At Loomis Sayles, we believe that ESG issues play an important role in the global economy, both from a business and investment perspective. Loomis Sayles embraces its duty to act at all times in our clients' best interest, and we believe that ESG issues impact our goal of achieving superior, risk-adjusted returns. We understand that environmental, social, and corporate governance practices may present risks that need to be evaluated, and we analyze these risks as part of our fundamental research process.

We analyze risks by modeling long-term business opportunities and challenges, by identifying risks inherent in industries and sectors, and by using a variety of methods to evaluate ESG issues, including engagement with Issuers and the use of third-party analytical tools. 

With respect to integration, we expect our investment professionals to consider all available macro, fundamental and quantitative research insights, including those related to ESG.

Unless otherwise directed, with respect to screening, Loomis Sayles does not impose any ESG restrictions or exclusions on the investment process. Screening performed is mandated by our clients' guidelines, or by regulation.

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

With respect to integration, we expect our investment professionals to consider all available macro, fundamental and quantitative research insights, including those related to ESG.  With respect to screening, Loomis Sayles does not impose any ESG restrictions or exclusions on the investment process. Any screening is mandated by our clients’ guidelines, or by regulation.


LEI 02. Type of ESG information used in investment decision

02.1. 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 

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

ESG issues are considered as part of the firm's investment decision-making process. We use MSCI IVA, MSCI’s ESG research and issuer scores. In addition, the Firm utilizes information from financial news publications, specialist data services, and economic and political consulting groups, and has considerable access to Wall Street research publications and sell-side analysts. At all times, Loomis Sayles has as one of its goals to continually identify additional superior tools for the research analysts and the investment teams. We continually evaluate the existing resources and the need to supplement them, both through the acquisition of data, the development of technological tools to assist in incorporating ESG into the investment process and to capture data in this regard and whether dedicated resources may be necessary in the future.

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

02.4. Describe how you incentivise brokers.

In 2017 our compensation for sell-side broker ESG research increased with respect to both published research and conferences.

02.5. Additional information.[Optional]


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. 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.

03.2. Additional information. [Optional]

We created a technology application that collects data for each company meeting attended by one or more investment professionals. The investment professionals document any discussion during the meeting of "E", "S" and "G" issues. That information is stored and available for use. Also, some internal research reports include the MSCI ESG rating as part of standardized reports.

We include the ESG MSCI ratings in some of our internally generated research reports.

Our ESG attribution analysis is available and used to ascertain the impact of an investment management team’s ESG related positioning on product performance.  

Semiannually, our Chief Risk Officer conducts an investment risk review with each investment product team.  The review includes exposure by ESG rating for the representative account, performance by ESG rating and a review of the lower ESG rated securities held in the portfolio with each portfolio management team in order to assess awareness of ESG issues in the portfolios.  Based on the review, the Chief Risk Officer shares processes and practices across all investment teams.


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

Screening is conducted in accordance with client-specific guidelines and/or the mandate of a given product.  We use vendors, such as MSCI, within our trading and compliance system to monitor activity related to a client's particular screening requirements.

04.2. 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 is conducted in accordance with client-specific guidelines and/or the mandate of a given product.  Frequency of review and changes are within the client's purview.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

We selected "Companies are given the opportunity by you or your research provider to review ESG research on them and correct inaccuracies" because we understand that our ESG vendor attempts to vet its analysis and ratings, and provides the issuers an opportunity to respond to its analysis on a regular basis.  However, anecdotal information indicates that this may not always occur.   


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached

          Audits of our trading system, which include holdings in accordance with fund guidelines, are undertaken regularly by external auditors.
        

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

Consistent with its fiduciary duties, Loomis Sayles’ policy is to take the utmost care in making and implementing investment decisions for client accounts. To the extent that trade errors or investment guideline breaches occur, Loomis Sayles seeks to ensure that its clients’ best interests are served when correcting such errors and that the client will be reimbursed for any loss caused by our error. Loomis Sayles’ Trade Error and Investment Guideline Breach Policies and Procedures ("Procedures") guide the resolution of, and help to prevent the recurrence of, such errors.

If it appears that a trade error or investment guideline breach has occurred, Loomis Sayles will review all relevant facts and circumstances to determine an appropriate course of action. When it is determined that Loomis Sayles has caused or contributed to a trade error or investment guideline breach, the client will be reimbursed by Loomis Sayles for any net loss attributable to our error or will retain any net gain realized in connection with the error correction, except as described below. Clients are informed in writing of all errors unless the error is an operational error (e.g., overdraft charge for failed trades) involving a small reimbursement amount or the error is corrected pre-settlement.

If an error is discovered after the settlement of the transaction (thus having occurred in the client’s account), the “correcting” transactions will be executed in the client’s account and the client will either be reimbursed for the loss or will retain any gain realized in connection with the error correction as described above. However, if an error is discovered prior to the settlement of the transaction, the trade will be moved to the error account of the executing broker or Loomis Sayles’ error account and will not be reflected on the client’s account statement. In this latter circumstance, Loomis Sayles and the broker-dealer, custodian or other parties involved in the transaction (other than the client) will determine who among them is obligated to bear any loss or entitled to retain any gain realized in connection with the error correction. Additionally, securities purchased in error for one client’s account may be reallocated to another client’s account if Loomis Sayles determines that it would be appropriate to do so under the facts and circumstances. Such reallocations require the approval of the Chief Investment Officer and Chief Compliance Officer.

All trade errors or investment guideline breaches will be resolved with the approval of the Chief Compliance Officer and other legal/compliance, portfolio management, trading, or other personnel, as appropriate, in accordance with the Procedures. The party responsible for the trade error will complete the Trade Error Correction Form in an automated system implemented for this purpose, and submit the form to the Chief Compliance Officer for final approval as required by the Procedures. Such errors and their resolutions are reported to Loomis Sayles’ Risk Management Committee, Trading Oversight Committee and Audit Committee on a quarterly basis.

As a policy matter we do not provide outside parties with information regarding violations of client mandates unless the violation has been in their account.  

06.3. Additional information.[Optional]


(C) Implementation: Integration of ESG issues

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate which ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

          ESG review is incorporated into structured, periodic meetings attended by members of investment product teams and the firm's Chief Investment Risk Officer.
        

09.5. Describe how ESG information is held and used by your portfolio managers.

          We have an internally-developed application for the collection of data relating to engagement.
        

09.6. Additional information.[Optional]

We have a technology application that stores data for each company meeting attended by one or more investment professionals.  The investment professionals document discussion of "E", "S" and "G" issues.  That information is stored in the application and available for use.  Also, some of our internal research reports now include the MSCI ESG rating as part of a standardized report.  

Semiannually, our Chief Risk Officer conducts an investment risk review with each investment product team.  The review includes exposure by ESG rating for the representative account, performance by ESG rating and a review of the lower ESG rated securities held in the portfolio with each portfolio management team in order to assess awareness of ESG issues in the portfolios.  Based on the review, the Chief Risk Officer shares processes and practices across all investment teams.


LEI 10. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2a. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

10.3. Describe how you integrate ESG information into portfolio weighting.

Each investment team assesses the ESG risks as part of its fundamental modeling and qualitative assessment.

10.4a. Describe the methods you have used to adjust the income forecast / valuation tool

Proportion of actively managed listed equity exposed to investment analysis

10.2b. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

10.4b. Describe the methods you have used to adjust the income forecast / valuation tool

Each investment team assesses the ESG risks as part of its fundamental modeling and qualitative assessment.

10.5. Additional information.


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