Edmond Rothschild Asset Management (France) considers dialogue as one of the cornerstones of its process of integration of the ESG criteria within its management.
As a priority issue, we want to promote dialogue with companies to improve transparency and the performance of companies: by refining our understanding of the issues and performance of companies and encouraging them to apply the best practices. Indeed, we firmly believe that a better ESG risk management allows to reduce financial risk and improve the business performance over the long-run.
Our engagement is mainly led individually at two levels:
< > Edmond de Rothschild Asset Management (France)'s RI team develops a direct dialogue format in the context of its ESG research and analysis and, prior to the shareholders meetingsThrough company visits, the RI portfolio managers and analysts use their proprietary ESG framework and actively discuss with companies on the evolution of their ESG practices. Since 2016, this type of engagement has started to be applied for all our European Equity management expertise and is progressively being extended to the overall equity teams.
Comprehensive engagement: It aims at promoting good ESG practices with the management of the companies held within the portfolio of our funds when we perceive that ESG risks and opportunities can affect their valuation on the long term. In such cases, the dialogue process is closely monitored and documented. In 2016, this type of engagement is applied for one flagship European Equity fund : Edmond de Rothschild Tricolore Rendement.
Please note that we started our experimentation of an active ESG engagement (“Comprehensive engagement”) in 2010 under the leadership of one of our flagship funds mainly invested in French stocks, but with a diversification on the eurozone stock market : Edmond de Rothschild Tricolore Rendement which accounts for 1. billion euros of assets in December 31,2017 and represents 18 7% of the european equities assets under management. For 7 years, this pioneer fund of ESG engagement in France has opened the path to become the close link between an SRI strategy and the pilot ESG integration process that is being implemented from 2016 across the equities management expertises of Edmond de Rothschild asset Management (France). This mainstream ESG engagement within our equity funds is fed by a direct dialogue (“Streamlined engagement”) on the ESG material issues during the meetings with companies and is led by the RI and/or equity managers until, if necessary, a more comprehensive dialogue is driven by the Edmond de Rothschild Tricolore Rendement Management team and the RI analysts team.
FOCUS ON THE COMPREHENSIVE ESG ENGAGEMENT APPROACH LED BY EDMOND DE ROTHSCHILD TRICOLORE RENDEMENT BETWEEN 2010 AND 2017
The engagement approach implemented by Edmond de Rothschild Asset Management (France) for the Edmond de Rothschild Tricolore Rendement fund has a two-fold objectives:
1. To encourage companies, in priority currently held within its portfolio, to make effective progress and communicate on ESG issues with the view to improving their practices, their transparency and their awareness on ESG challenges.
2. To upgrade the investment process applied to Edmond de Rothschild Tricolore Rendement by incorporating ESG criteria into its financial analysis, and using ESG Engagement as a lever to add value to the stock - in keeping with the fund's investment style and objectives.
Indeed, the no style multicaps management: aims to deliver long-term capital appreciation and low volatility. This optimization of the risk-return combination of the portfolio aims to protect the capital with the goal to anticipate potential ESG related risks that have not or inaccurately been factored in by the market and that if materialized, could have a negative impact on stock market performance. The process also requires identifying ESG issues that the market is already well aware of, that are having a negative impact on the valuation of a given company, and that if improved upon – driven by Edmond de Rothschild Tricolore Rendement - could deliver potential upside.
Securities are subject to non-financial analysis based on ESG criteria. . From the ESG analysis, based on an internal, proprietary analysis method, and on the rating level determined using portfolio securities, the manager identifies non-financial issues, which then form the focus of engagement and dialogue. However, the implementation of this ESG engagement process is not intended to define an eligible investment scope. At the end of the engagement and dialogue period, the manager may decide to sell the investment in question if insufficient progress has been made in terms of ESG transparency and/or performance.Companies the fund will engage with as a priority
Once the ESG analysis has been conducted on the portfolio, the fund's investment team is alerted by the SRI Research team for any stock rated lower than the minimum threshold of "A ".Consequently, our Engagement policy will be initiated as a priority with companies that:
- are given low SRI ratings (under "A"),
- have ratings under the average on one of the ESG criteria despite a SRI rating above “A”),
- may potentially be exposed to ESG controversies
- are part of strong financial convictions from the portfolio managers on targeted ESG issues.
People responsible for engagement on behalf of the fund and, people engaged within the investees companies
The comprehensive engagement is implemented by the portfolio managers of Edmond de Rothschild Tricolore Rendement and the RI analysis team. The ESG engagement activity is reviewed by the Engagement and Voting Committee.
With the support of Edmond de Rothschild Asset Management (France)'s RI team, the managers of Edmond de Rothschild Tricolore Rendement, promote direct dialogue at all levels within the companies (executive management, strategic and financial directors, sustainable development departments, HR, Investor Relations…) and if needed, ask for ad-hoc meetings with operational team members in order to review some of the issues in more depth.