Consistent with its active fundamental management strategy, Edmond de Rothschild Asset Management (France) manages its portfolios and engages with companies in the purpose to safeguard fund-holder interests, and its constant quest for performance, with a view to long-term and sustainable value creation.
In order of importance, several factors are looked at to decide of the interest to launch an ESG engagement initiative with a company:
Geography / market of the companies targeted: For the moment, our streamlined and comprehensive engagement activities are mainly implemented for the securities held within our European equities funds but are being extended on the overall perimeter of our equity management expertise.
In reaction to ESG impacts which has already taken place and, Exposure
Our SRI funds and mandates, that develop a best-in-universe and ESG engagement strategies, represent 12,7% of our AUMs. Consequently, prior the launch of an ESG active dialogue, we are paying particularly close attention to the evolution of the ESG practices and performance of the companies held in the portfolios of these funds, as well as their level of exposure regarding ESG controversies, and weights within the european equities funds' portfolios of Edmond de Rothschild Asset Management (France).
For the Engagement fund, Edmond de Rothschild Tricolore Rendement, the Engagement policy will be initiated as a matter of priority with companies that are badly rated (ratings that are strictly under A or lower than average on one criterion despite being above A on an accrued basis), and that are potentially exposed to ESG controversies.
Materiality of ESG factors and as a response to divestment pressure
As part of the investment process applied to the fund Edmond de Rothschild Tricolore Rendement, and before we initiate our engagement process with companies, the RI team screens the portfolio based on ESG criteria. This screening enables the fund managers to identify the companies that they will seek to engage with due to their low ESG rating - as this may generate investment risk over the long term.
The fund's investment team is also informed of the ratings per ESG factor for each stock in the portfolio and of any sensitive-type developments, on a material point of view. This information enables them to initiate a proactive comprehensive Engagement process with companies whose ratings are down, covering one or more pillars.
By extension of this core SRI process of engagement, please note that the ESG integration process implemented by the European Equities management team involves a supportive action to the engagement process led by Edmond de Rothschild Asset Management (France) with Edmond de Rothschild Tricolore Rendement. Indeed, with the support of the RI analyst team, the portfolio managers measures the ESG quality of their funds' portfolio in order to identify material ESG risks and opportunities that could occur dedicated questions on these specific issues during the financial meetings.
Consequently, on a scalable manner, the European equities fund managers tend to meet increasingly with company officers on a regular basis to discuss both strategic, financial and ESG themes with them. These meetings are also an opportunity for fund managers to bring up shareholder meeting resolutions, in order to move the company towards better practices.
Systemic risks to global portfolios
Regardless of the nature of the risk, financial or ESG, the Fundamental Asset Management Department and Risk Department are particularly vigilant with regard to any systemic risk to the funds of Edmond de Rothschild Asset Management (France). For example, weekly equity and fixed-income management meeting are held with the reporting done by the RI team of current issues (alerts regarding controversies or sensitive issues, highly material events related to the stocks) to detect any risk that could have a negative financial impact on several portfolios. The RI team also proceeds by day-to-day informal and email discussions with RI asset managers regarding an issuer's material ESG risks.
Furthermore, all equity 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 example, one project untitled “Valuation impact of ESG research” was achieved in 2017: the impact of ESG ratings on the valuation of equities has been assessed using an internal methodology and validated by the equity management teams involved in the project. The positive or negative impact of ESG ratings is shown by a percentage change (upward or downward) in the share price.
As a follow-up from a voting decision
Edmond de Rothschild Asset Management (France) also acts prior and post to the Shareholders meetings by:
Proactively sending out the firm's Voting Policy to companies invested by Edmond de Rothschild Tricolore Rendement and EdR Euro Sustainable Growth funds, explaining Edmond de Rothschild Asset Management (France)'s approach as a responsible shareholder and inviting companies to engage with our fund managers on ESG issues.
Responding to companies' requests to inform them of the portfolio managers' voting intentions prior to the shareholder meeting, particularly in the event of negative votes or abstentions.
Conducting regular meetings with company management, prior or post shareholders meetings, in order to exchange views on strategic, financial and extra-financial issues.
As Edmond de Rothschild Asset Management (France) manages SRI mandates on behalf of pioneering institutional investors that have adopted an engagement policy, we regularly engage with companies in the name of our clients. We also regularly discuss with our clients to have their view on ESG issues or companies and integrate these in our decisions to focus our dialogue on any company.
We regularly meet NGOs, trade unions and other stakeholders. We can use their inputs to engage with companies.