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Edmond de Rothschild Asset Management (France) (EDRAM)

PRI reporting framework 2018

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ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

01.1. Indicate 1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and 2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.

SSA
50 Screening alone
0 Thematic alone
0 Integration alone
49 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
1 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
73 Screening alone
0 Thematic alone
0 Integration alone
26 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
1 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
73 Screening alone
0 Thematic alone
0 Integration alone
26 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
1 All three strategies combined
0 No incorporation strategies applied
100%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

The choice of SRI/ESG strategies, i.e. screening and ESG integration, is based on the four following drivers:

  • A combination of strong ESG and financial convictions with the view to enhancing the appreciation of the risk of default by the debt issuers.
  • The development of a complementary analysis to refine the knowledge of debt issuers and reduce the risk of controversy
  • The desire to develop innovative analysis and investment tools for our clients that  meet new ESG-related demands from institutional clients

Concerning the combination of RI strategies:

  • all of our investments in corporate debt issuers apply a negative screening approach based on the exclusion of companies whose business is in any way related to cluster bombs and anti-personnel landmines, and related to banned countries for the sovereign/corporate debt issuers

    the positive screening is implemented through one open-ended SRI corporate bond fund: EdR Euro Sustainable Credit

  • the ESG integration is implemented through an ESG research accessible by the FI team  as well as their active involvement  in the refection and implementation of concrete ESG integration projects led by the in-house RI team.

01.3. Additional information [Optional].

CORPORATE DEBT ISSUERS

Since 2014, Edmond de Rothschild Asset Management (France) has extended its SRI/ESG expertise to its credit bond management via:

the launch of its first SRI open-ended credit fund on 1 September 2015: Edmond de Rothschild Euro Sustainable Credit. This euro zone credit fund applies an SRI approach with a positive best-in-universe screening of mostly Investment Grade securities, but with a diversification pocket of High Yield securities. Its approach aims to favour the most performant firms in terms of ESG so as to offer the fund manager an additional appreciation perspective, enabling him to fine-tune his assessment and, ultimately, his level of confidence in respect of their levels of exposure to a default risk.

an ESG integration strategy: the development of this SRI fund generated concomitantly the development of an ESG integration strategy for euro zone corporate debt issuers by offering, upon request, the ESG research data on these issuers to the Credit team composed of 14 fund managers-analysts. Presently, an access to the in-house ESG research is possible on a shared file easily accessible, and on demand to the SRI Credit manager for  the analysis produced by the extra-financial agency -Sustainalytics - for the rest of the credit universe not covered by our in-house ESG research team. In a second phase, the integration of ESG data related to corporate debt issuers within our in-house instruments reference data is a started in 2017 that will expand in 2018.

 

Furthermore, all of our investments in corporate issuers apply a negative screening approach (used systematically across all the asset management company's funds) based on a negative / exclusionary screening of companies whose business is in any way related to cluster bombs and anti-personnel mines, in accordance with the Oslo Treaty and the Ottawa Convention signed by the French Government.

SOVEREIGN DEBT ISSUERS

In addition, Edmond de Rothschild Asset Management (France) has implemented an advanced ESG integration  approach for euro zone sovereign debt issuersd with its Asset Allocation and Sovereign Debt teams.

 

NEGATIVE SCREENING APPLIED FOR THE SOVEREIGN AND CORPORATE DEBT ISSUERS

At last, a negative screening is also applied for the sovereign  and corporate debt issuers according to the main global legal constraints such as countries under embargoes, that finance terrorism, subject to financial sanctions or still are part of the money laundering blacklist. For more explanations, please refer to FI 05.3.  


FI 02. ESG issues and issuer research

02.1. Indicate which ESG factors you systematically research as part of your analysis on issuers.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Environmental data
Social data
Governance data

02.2. Indicate what format your ESG information comes in and where you typically source it

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  

specify description

          Official databases: Eurostat, Transparency International, PISA, AEE, Institute for Economics ﹠ Peace
        

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

The work carried out by the RI team leverages on a proprietary research, based on an in-house ESG analysis matrix and scoring model fed with complementary data obtained from a variety of sources:

  • From the companies being analysed (CSR publications and corporate websites, meetings with company management)
  • Provided by external extra-financial rating agencies (broad-based agencies such Sustainalytics, or specialist players (RepRisk for controversial issue alert systems))
  • From brokers producing ESG focused research (CA CIB, Natixis, Oddo, ,…)
  • From agencies specialized in governance analysis (Proxinvest and ISS)
  • From other data providers (Bloomberg, CDP,…), stakeholders (NGOs, outside experts, trade unions …) and public databases

A joint ESG analysis model is applied, both for the eurozone equities and the corporate bonds, and for the ESG incorporation strategies developed.  In order to reach a global coverage on the credit universe, this extension of the ESG analysis capabilities has been made through a partnership with the  extra-financial agency Sustainalytics. Consequently, since 2017, the ESG research is available for around 6 000 European and global companies, including 2600 corporate debt issuers (against 670 in 2016.

For the eurozone sovereign debt issuers, a proprietary ESG scoring model is fully implemented and updated regularly.

02.4. Additional information. [Optional]


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

03.2. Describe how your ESG information or analysis is shared among your investment team.

          Few ESG factors, particularly those on governance, are taken into account by our in-house credit management team to evaluate corporate issuers credit quality.
        

03.3. Additional information. [Optional]

The ESG Sovereign debt scoring model has been definitively  upgraded with in 2017 with the integration of an new criteria to reflect the SDG. The ESG analysis of the countries is systematically integrated in the fundamental analysis of each Interest Rate Committee

For the ESG Corporate Debt scoring model: Our rating methodology and the matrix for ESG analysis were drawn up following a survey of existing data frameworks (eg, UN Global Compact, OECD or ILO-led conventions). Our ESG rating model was built with weightings that differ from the sector-based ESG criteria which take the specificities of each sector into account.

The ESG ratings of companies covered by our in-house extra financial analysis are updated every 18 to 24 months.

Even if the fundamental ESG pillars of our RI research are not set to change, within them, the criteria or weightings can evolve according to their pertinence or enhance following the identification of new sustainable development issues.

Our Internal Control department carries out an annual review of the ESG research methodology. This involves checking the factsheets and the in-house ESG ratings for every stocks and corporate debt issuers within the SRI credit bond fund portfolio.


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

Our investments in corporate issuers apply a negative screening approach (used systematically across all the asset management company's funds) based on an  exclusion of companies whose business is in any way related to cluster bombs and anti-personnel mines.

In addition, we  have developed a positive screening based on a best-in-universe approach for the Eurozone corporate debt issuers. It is applied ex-ante in one credit bonds SRI fund. Consequently, this corporate bond fund has implemented a systematic incorporation of ESG analysis within its investment process. The ESG screening criteria has been established according to our in-house proprietary approach following a survey of existing data frameworks (see answer FI 03.3.). The criteria and their weightings are reviewed annually by the RI team.

At last, a negative screening is implemented for the sovereign/corporate debt issuers according to the main global legal constraints such as countries under embargoes, that finance terrorism, subject to financial sanctions or still are part of the money laundering blacklist.

04.3. Additional information. [Optional]

In terms of external communications regarding changes made to Edmond de Rothschild Asset Management (France)'s ESG research model, all relevant publications are updated regularly on our website in the "Responsible Investment" section (http://www.edmond-de-rothschild.com/site/France/en/asset-management/our-expertise/socially-responsible-investment ), accessible to all stakeholders and clients who wish to follow the updates made to our SRI investment and research process. In addition, Edmond de Rothschild Asset Management (France) launched a new publication dedicated to SRI, "The SRI Chronicles", in 2013. This public newsletter can also include information on any changes made to the ESG/SRI investment process.

Finally, in the context of Edmond de Rothschild Asset Management (France)'s management of SRI mandates, the Investment and Extra-Financial Investment Committees organised for institutional investors provide an appropriate venue for disclosing any information or discussing any changes made to Edmond de Rothschild Asset Management (France)'s SRI research or investment process.


FI 05. Negative screening - overview and rationale

05.1. Indicate why you conduct negative screening.

SSA

SSA

Corporate (financial)

Corporate (fin)

05.2. Describe your approach to ESG-based negative screening of issuers from your investable universe.

All our investments in corporate issuers apply a negative screening approach (used systematically across all the asset management company's funds) based on an  exclusion of companies whose business is in any way related to cluster bombs and anti-personnel mines, in accordance with the Oslo Treaty and the Ottawa Convention signed by the French Government.

Beyond this product -based exclusions of companies whose business is any way related to cluster bombs and anti-personnel mines - in compliance with an internal policy applicable to all Edmond de Rothschild Asset Management (France)'s funds (managed in house or sub-advised) - there is neither a sector or thematic-driven exclusion/inclusion bias, nor a geographic (within the euro zone) or market cap bias in Edmond de Rothschild Asset Management (France)'s SRI funds.

A negative screening is applied for the sovereign and corporate debt issuers according to the main global legal constraints such as countries under embargoes, that finance terrorism, subject to financial sanctions or still are part of the money laundering blacklist

05.3. Additional information. [Optional]

Our complete negative screening process implemented on the exclusion of Cluster Bombs and Anti-personnel landmines

Edmond de Rothschild Asset Management (France) has implemented a policy excluding issuers involved in the production of cluster bombs and anti-personnel mines from all of the UCITS/AIF and mandates it manages.

The list of issuers involved in the production of cluster bombs and anti-personnel mines is drawn up at least once a year by the RI management team, in cooperation with the Chief Investment Officer. This list  is based on internal research and publicly-available lists (PGGM, Norwegian pension fund, Australian pension fund, etc.)

At the Voting and Engagement Committee, which meets at least twice a year, this list is submitted by the RI investment team and reviewed and validated, as appropriate, by the Committee. The Committee's minutes include the validation of the list and its composition. It is circulated to all the Investment teams, to the Executive Board and to Internal Control and Compliance.

After validation by the Voting and Engagement Committee, the list is e-mailed by Internal Control and Compliance to the Risk Department so that the latter can update the setting of the pre-trade limit in the Dimension front office tool. This limit applies to all of the portfolios managed by Edmond de Rothschild Asset Management (France). It lists the stocks prohibited from the investment universe of the funds managed by Edmond de Rothschild Asset Management (France). Once the list has been programmed, the fund manager may no longer transmit an order on this issuer.

 

Our complete negative screening process implemented for both the corporate and  sovereign debt issuers

Edmond de Rothschild Asset Management (France) has drawn up a list of banned countries for which it is necessary to obtain prior approval from Internal Control and Compliance Department of the Edmond de Rothschild Asset Management (France) before making any investments. As a result, this list of banned countries has an impact in the authorisation of our investment for the equities, corporate and sovereign debt.

Nearly 30 countries appearing on this list are subject to an embargo put in place by the United States and Europe or have been subject to financial sanctions or to asset freezes.

Some countries are formally prohibited (5 countries under embargo, i.e. Cuba, Iran, Syria, North Korea and Sudan), while others are placed under a close monitoring: this triggers an analysis on a case by case basis by the internal control and compliance department which authorizes or prohibits the investment within the day.

In order to enforce this screening, systematic pre-trade blocking limits have been set up in the Dimension front office tool: this pre-trade block limit is set in all cases, except for the sovereign debt of the following countries (i.e. Ukraine, Russia, Egypt, Iraq, Tunisia, Bosnia & Herzegovina) due to a lack of sanctions.


FI 06. Examples of ESG factors in screening process (Private)


FI 07. Screening - ensuring criteria are met

07.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening?
Positive/best-in-class screening

other description

          Periodic auditing/checking of the organisations RI funds by external part
        

07.2. Additional information. [Optional]

Controls of Negative screening process

=>The exclusion of Cluster Bombs and Anti-personnel landmines for the Credit bond management

After validation by the Voting and Engagement Committee, the list of issuers involved in the production of cluster bombs and anti-personnel mines is e-mailed by Internal Control to the Risk Department so that the latter can update the setting of the pre-trade limit in the Dimension tool. This limit applies to all of the portfolios managed by Edmond de Rothschild Asset Management (France). It lists the issuers prohibited from the investment universe of the funds managed by Edmond de Rothschild Asset Management (France). Once the list has been programmed, the fund manager may no longer transmit an order on this issuer.

 

=>Negative screening for the Sovereign and Corporate debt management

Edmond de Rothschild Asset Management (France) has drawn up a list of banned countries for which it is necessary to obtain prior approval from internal control or from the Compliance Department of the Edmond de Rothschild Group before making any investments. Nearly 30 countries appearing on this list are subject to an embargo put in place by the United States and Europe or have been subject to financial sanctions or to asset freezes. In order to enforce this screening, pre-trade blocking limits have been set up in the Dimension front office tool (See details in 05.3.).

 

 

​ Edmond de Rothschild Asset Management (France)'s Compliance and Internal Control team carries out regular controls on the investment process and ESG analysis methodology implemented for the Edmond de Rothschild Euro Sustainable Credit  fund. These reviews involve ensuring that  at least 90% of the portfolio holdings is documented (stock factsheets) and has received an internal ESG rating and that the exlusion rate is above 20% of the universe..

Finally, the transparency and thoroughness of our ESG research methodology is audited by third parties such as EY France (within the new SRI labelling process launched  and supported by the French Finance Ministry and awarded for the credit SRI fund Edmond de Rothschild Euro Sustainable Credit.  


(B) Implementation: Thematic

FI 08. Thematic investing - overview (Private)


FI 09. Thematic investing - themed bond processes

09.1. Indicate whether you encourage transparency and disclosure relating to the issuance of themed bonds as per the Green Bonds Principles, Social Bond Principles, or Sustainability Bond Guidelines..

          We require a minimum level of ESG quality for the corporate issuing the green bond.
        

09.2. Describe the actions you take when issuers do not disburse bond proceeds as described in the offering documents.

We have not been confronted to this case at this stage.If that case shall occur in the future, we will not participate to a new social or environmental bond issued by the same corporate.

 

09.3. Additional information. [Optional]


FI 10. Thematic investing - assessing impact

10.1. Indicate how you assess the environmental or social impact of your thematic investments

10.2. Additional information. [Optional]


(C) Implementation: Integration

FI 11. Integration overview

11.1. Describe your approach to integrating ESG into traditional financial analysis.

By constantly optimising its SRI expertise, Edmond de Rothschild Asset Management (France) seeks to offer its clients new, complementary analysis and management tools on top of those already developed by the management company.

Integrating ESG in traditional financial analysis gives managers of credit debt and sovereign debt an additional appreciation perspective, enabling them to fine-tune their assessment and, ultimately, their level of confidence in issuers' levels of exposure to a default risk.

 

Integrating ESG in corporate debt

Since 2015, the ESG analysis has been systematically integrated in one of the euro zone SRI credit funds, Edmond de Rothschild Euro Sustainable Credit, totalling €103 million in assets under management at 31 December 2017. This fund is a sort of Trojan horse used to incorporate ESG analysis concretely and gradually within credit management as a whole by contributing, initially, to disseminating the codes of ESG analysis throughout the credit management team. This integration results in informal exchanges between the credit management team and the RI manager, as well as with the internal extra-financial analysts through  day-to-day email discussions with RI asset managers regarding an issuer's material ESG risks (risk mitigation). This also takes the form of more formal exchanges with the reporting of current issues discussed in weekly equity and fixed-income management meetings regarding ESG convictions (alerts regarding controversies or sensitive issues, highly material events, investment opportunities on sustainability-related stocks)

 It is being  strengthened  with the integration of ESG data related to corporate debt issuers within our in-house tools  that  is an ongoing project opened in 2017 and an access to Sustainalytics’  ratings for all EDRAM asset managers. The RI credit fund manager is the link between the credit management team and the RI analysis team, integrated in all Edmond de Rothschild Asset Management (France)'s management strategies in a cross-cutting way, guaranteeing the ESG analysis process.

.  We also invested in green bonds issues by corporates (Toyota, Westpac…)

Besides, all equity and bond management teams are contributing to and co-operating with ten ESG integration projects in 2017-2020. These innovative projects, chosen by asset management teams, are giving concrete, traceable results, and are focusing on precise subjects identified as highly material in financial terms.

For illustrative purpose, the RI team worked closely with the Credit management team on one primary ESG integration project with strong financial materiality and related to “Valuation impact of ESG research for equities and corporate credit”. In this context, the impact of ESG ratings on the valuation of bonds has been assessed using an internal methodology and validated by the corporate credit management team involved in the project. The positive or negative impact of ESG ratings is shown by the improvement or deterioration in financial ratings (number of notches) in the case of bonds. This impact is now systematically recorded in all new issuer analyses and their updates, and the analysis results are provided to all bond managers.

 

Integrating ESG in sovereign debt

Edmond de Rothschild Asset Management (France) has also implemented an ESG analysis approach for euro zone sovereign debt issuers formally launched in 2017.

This analysis approach, which for the time being covers only the category of Sovereign issuers within the meaning of the PRI's SSA classification, has been developed by one of our sovereign debt manager-analyst, with regular interaction with the internal RI team as part of the search for and selection of sustainability indicators based on publicly-available sources, such as Eurostat. It has been updated in 2017 with the alignment of the methodology on the Sustainable development goals and the inclusion of a new criteria to attain this alignment.

The combination of ESG indicators short-listed for the ESG integration process aims to identify a favourable trend in terms of solvency of states in the medium to long term by combining the financial and extra-financial approach. Consequently, this analysis model enables us to see more clearly which ESG factors have a material impact on the economic performance of issuer countries in Europe. Our in-depth review of all possible indicators resulted in around 33 being selected which we consider the most relevant across the 3 ESG pillars. We have prioritized to use raw data for the countries' ESG criteria and minimise the use of indices aggregating several data/indicators, so that we can interpret more precisely the strengths and weaknesses of each country:

The Environmental pillar includes waste recycling systems, the surface area of organic farming and of course CO2 emissions and renewable energy generation. For financial reasons, we favoured issuers of green bond, which accounted for 1.5% of all the sovereign and agencies debt AUM

In the Social pillar, the use of multi-dimensional indicators proved very revealing. For example, the merging of the rate of employment of men and women with the birth rate per family has shown that, despite its economic strength and its very good Governance score, Germany lost some points, notably due to the absence of policies to balance work and family. On the contrary, the strength of France's score on the Social and Environmental pillars supports it in continuing to receive an AA rating from the main agencies (compared with Germany's AAA).

This holistic view of each country's approach has helped us to identify, for example, Ireland's ability to resist and bounce back after the financial crisis (it has one of the highest ESG scores) and to identify Portugal as a country where a good ESG score points to a strong sustainable growth potential. By contrast, Greece and Italy's low score on the Governance and Social pillars partially explained why their overall rating was lower than that of other countries.

 

 

11.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

SSA

The ESG indicators selected to assess euro zone sovereign debt issuers are intended to demonstrate their contribution:

  • to a sustainable and harmonious development of society
  • to the construction of a healthy economy, competitive and reducing inequalities

These indicators are thus likely to have a positive impact on the long-term growth of the countries concerned. They complement the purely financial view, by strengthening or moderating it (on the whole, purely financial criteria are more correlated to growth in the short and medium term).

The internal SRI rating model for sovereigns includes, in addition to financial criteria, criteria on the 3 ESG pillars with scores on the overall ranking and scores on progress. The progress score rewards countries that make efforts, which we expect to have a positive impact on their development and growth outlook, and therefore on the performance of the bonds issued.

The choices made and the weight given to the various criteria take into account possible fiscal effects in order to link sustainable development policies with their effectiveness and with the bond investor's point of view (expenditure/results or measurable progress on the criteria for which a measure is available or greater weighting of criteria liable to fines for non-compliance, as included in the EU's objectives or, more generally, for greenhouse gas emissions).

In 2017, an integration project between the RI team and the fund manager  resulted in the alignment of the ESG analysis of countries to the Sustainable Development Goals.

Corporate (financial)

The ESG analysis for the corporate debt is the same as for equities.

Company ESG ratings are calculated in-house as Edmond de Rothschild Asset Management (France) firmly believes that this process is complementary to financial analysis and offers important insights on whether the company's strategy is sustainable (or not): it can also strengthen the confidence toward the default risk.

Edmond de Rothschild Asset Management (France)'s rating methodology and the matrix for extra-financial analysis were drawn up by our SRI fund management/research team following a survey of existing data frameworks (UN Global Compact, OECD or ILO-led conventions and official texts).

Our SRI rating model was built with weightings that differ from the sector-based ESG criteria which take the specificities of each sector or industry in account. The ESG ratings of companies covered by our in-house extra financial analysis are updated every 18 to 24 months.

The result of this ESG analysis is materialized by ratings that are based on a seven-point scale ranging from CCC to AAA and are determined by aggregating the company’s global results on different ESG criteria, as per the rating matrix designed by the RI specialist team. Extra-financial criteria are allocated different weightings according the company’s sector or industry; however, the overall rating is determined on an absolute basis and is not relative to the sector performance

Corporate (non-financial)

Our corporate non-financial approach is the same as the corporate financial described above.

11.3. Additional information [OPTIONAL]


FI 12. Integration - ESG information in investment processes

12.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is integrated into security weighting decisions
ESG analysis is integrated into portfolio construction decisions
ESG analysis is a standard part of internal credit ratings or assessment
ESG analysis for issuers is a standard agenda item at investment committee meetings
ESG analysis is regularly featured in internal research notes or similar
ESG analysis is a standard feature of ongoing portfolio monitoring
ESG analysis features in all internal issuer summaries or similar documents
Other, specify

12.2. Additional information [OPTIONAL]

Corporate Debt issuers

For the two choices ticked related to the integration of ESG analysis within corporate debt weighting decisions and portfolio construction decisions, it is only applied to our SRI corporate debt fund Edmond de Rothschild Euro Sustainable Credit.

Concerning the fourth choice ticked, we choose to keep the ESG rating apart from the financial rating of an issuer in order to dig the gap during the dialogue with the issuers and by strengthening our analysis.

 

Sovereign Debt issuers

The ESG scoring for the sovereign issuers is regularly updated, integrated within the spread sheets and easily accessible by the Asset Allocation and Sovereign debt team. The ESG analysis and information  is systematically a part of the interest rates committee. On a non-systematic basis, the ESG opinion related to sovereign debt issuers  has been part of discussion during investment committee meetings in order to confirm an investment choice, for instance on the Portugal or the Netherlands. 


FI 13. Integration - E,S and G issues reviewed

13.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
SSA

Environmental

Social

Governance

Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

13.2. Please provide more detail on how you review E, S and G factors in your integration process.

SSA

Integrating ESG in traditional financial analysis gives managers of sovereign debt an additional appreciation perspective, enabling them to fine-tune their assessment and, ultimately, their level of confidence in issuers' levels of exposure to a default risk.

Based on the short list of quantitative indicators on the ESG pillars, we combined data from the ranking in absolute terms (best-in-class), giving a "Global" score weighted at 60%, with data on changes over 5 to 10 years (best effort), giving a "Progress" score weighted at 40%. These two rating levels combined provide an aggregate score by E/S/G pillar. An overall ESG score is determined at the end of process. This score is cross-referenced with the financial score determined internally for euro zone sovereign debt issuers.

Around thirty ESG indicators have been selected for the three pillars (around fifteen for environmental and social, six for governance):

for the Environmental pillar, 2 types of criteria have been selected: one focusing on waste management and natural resources, the other on energy.

for the Social pillar, indicators are divided according to 4 criteria: health, poverty and social protection, education and social progress, employment and social progress.

for the Governance pillar, the salient themes relate to the ease of doing business, the corruption index, the global peace index, innovation, R&D and development aid.

Corporate (financial)

Integrating ESG in traditional financial analysis gives managers of corporate debt an additional appreciation perspective, enabling them to fine-tune their assessment and, ultimately, their level of confidence in issuers' levels of exposure to a default risk.

Our SRI rating model is constructed in order to allocate different weightings to ESG criteria in order to take the specificities of each sector or industry into account. In practical terms, this means that different extra-financial criteria are given varying degrees of importance depending on the company's sector or industry; each of the four pillars is therefore allocated a different weighting. For instance, a chemicals company will be more concerned by environmental issues, while a services company will be allocated a higher weighting for social factors. However, the overall rating is determined on an absolute basis and is not relative to the sector performance.

Corporate debt managers draw on the internal ESG-S analysis and the corresponding scoring made available to them to assess the sectoral issues related to each stock in their investment universe, i.e.:

  • On the Environmental pillar:

Environmental Risk Management: Implementation of environmental management scheme, present and future regulations  compliance

Environmental footprint: GHG/CO2 emissions, Energy/water consumption, Waste management, Pollution

Product or service impact and Green innovation:  Lifecycle analysis, Innovation, Eco-design

 

  • On the Social pillar:

Human resource management : Employee loyalty, Career management and training, level of absenteeism and staff turnover 

Social dialogue: Employee representation, Restructuring management,  collective agreements, employee satisfaction

Workplace environment: Health & Safety management, Diversity, etc

 

  • On the Governance pillar:

Board Structure: Independent board& committees, Power separations, Diversity of the board,

Audit and internal control: Independence of auditors, Independence of audit committee,

Executive compensation: Transparency, Link with performance

 

 

In addition, the fund managers pay special attention to aspects related to management quality and exposure to controversies, which can have an impact on debt repayment capacity.

Corporate (non-financial)

Same contents as the one for the corporate financial above

13.3. Additional information.[OPTIONAL]


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