Context and overall approach
As part of its responsible investment policy, Edmond de Rothschild Asset Management (France) has defined a process to build ESG factors into its outsourced management to varying degrees. Outsourced management takes two forms:
The selection of external funds as part of our multi-management and asset allocation expertise, representing nearly €2 billion in assets under management at 31/12/2017
Delegations to external management companies for 4 funds in 2017: two equity funds, one money market fund and one multi-management fund, totalling €1.5 billion in assets under management at 31/12/2017
As a PRI signatory since 2010, Edmond de Rothschild Asset Management (France) chose to focus on developing its responsible investment approach within the scope of its internal management in the first five years after signing to the PRI, as external management accounts for less than 10% of its assets under management.
In 2016, the preparatory year for Edmond de Rothschild Asset Management’s 2017-2020 Responsible Investment Strategy, we decided to extend our expertise in this area to our external management in stages, starting in 2016-2017 with our external fund selection activities for multi-management and asset allocation. As for our management delegations, even though a specific approach has not yet been defined at this stage, they are subjected, for our two equity funds, to exercising the voting rights attached to the stocks in which they are invested and to a negative screening on anti-personnel mines and cluster bombs, in accordance with our annually updated exclusion list. It is worth noting that one of the two management companies to which we delegate the management of the EDR Japan fund, Sumitomo Mitsui Asset Management (“SMAM”), is a signatory to the PRI.
ESG incorporation strategies applied
For our external management expertise related to listed equities and fixed income for which we report within this module, Edmond de Rothschild Asset Management (France) implements the following ESG incorporation strategies for these two categories of partners to whom we allocates the management of our assets:
the 2 asset management firms, SMAM and Edgewood, to which we delegate the management of two of our open-ended equity funds: these two partners, that manage the funds EDR Japan and EDR US Growth, are accountable to implement at this stage our negative screening approach related to the exclusion of companies whose business is 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). Concretely, at each update of our blacklist, we communicate the information to SMAM and Edgewood in order for them to take account of this list for the management of the EDR Japan and EDR US Growth funds. Edmond de Rothschild Asset Management (France) does not control the proper implementation of this exclusion list on a pre-trade basis, but a post-trade limit has been set up within our front office tool “Dimension” that allows us to check that no blacklisted issuers have been invested to the funds’ portfolios.
The external asset management firms for which at least one fund is currently approved for investment within Edmond de Rothschild Asset Management’s Multi-Management / Fund selection and Asset allocation expertise :
Mainstream external fund selection : for this category, as we are an investor among others within their funds, we cannot impose the implementation of an ESG incorporation policy. However, in compliance with our commitment when we signed the PRI, we have defined and applied an advanced ESG integration process by asking for qualitative information related to the external funds’ responsible investment practices in order to open a constructive dialogue with them on a case by case basis that aims at encouraging the adoption of good RI practices, such as becoming a PRI signatory.
Consequently, even if an ESG integration strategy is not strictly required for all of thefunds, ESG information and KPIs are requested via a proprietary “SRI/ESG questionnaire” to know if it is applied and at what level, ultimately identifying the funds that implement positive ESG screening and sustainable thematic strategies. In 2017, this ESG integration process was applied for long-only management funds and some UCITS Hedge funds. In 2018, we might extend our approach to all Hedge funds.
For the funds on the whole, our objective is to increase the level of awareness among managers so as to develop their ESG risk mitigation approach for their fund portfolio management as well as to identify the most advanced SRI funds that conciliate financial performance and strong positive environmental and social impacts.
SRI fund selection for our SRI mandates: for this category, we systematically require the incorporation of ESG screening and/or social or environmental thematic and integration strategies to be in a position to invest. In 2017, the team developed the sustainable fund selection expertise that formed the basis, in winter 2017, of the newly launched SRI mandate for private clients of the Edmond de Rothschild group and a number of institutional investors. This SRI fund selection process for this SRI mandate is implemented through an ESG due diligence based on our SRI/ESG questionnaire as a first step and is deepened to evaluate the ESG quality of the funds via accurate questions related to RI practices in the context of systematic one-on-one meetings. This in-house process could be reinforced in 2018 by the use of external consultants specialised in Responsible Investment fund selection to get a wider access to SRI funds and / or complement, if necessary, our in-house ESG analysis according to accurate needs and expectations so as to better inform the appointment decision.