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Edmond de Rothschild Asset Management (France) (EDRAM)

PRI reporting framework 2018

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Process

Process for engagements run internally

LEA 03. Process for identifying and prioritising engagement activities

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

03.1. Indicate whether your organisation has a formal process for identifying and prioritising engagement activities carried out by internal staff.

03.2. Describe the criteria used to identify and prioritise engagement activities carried out by internal staff.

03.3. Additional information. [Optional]

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.

 

Client request

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.

Stakeholders consultations;

We regularly meet NGOs, trade unions and other stakeholders. We can use their inputs to engage with companies.

 


LEA 04. Objectives for engagement activities

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

04.1. Indicate if you define specific objectives for your engagement activities.

04.2. Indicate if you monitor the actions that companies take during and following your engagements activities carried out by internal staff.

04.3. Indicate if you do any of the following to monitor and evaluate the progress of your engagement activities carried out by internal staff.

04.4. Additional information. [Optional]

An efficient comprehensive Engagement process requires that we set up a constructive dialogue with the target company, and that this company is receptive to tackling the ESG challenge(s) we have identified.

 Monitoring the efficiency of engagement initiatives

  • Edmond de Rothschild Asset Management (France) has the means and resources to monitor its Engagement initiatives:
  • For each company held by the fund Edmond de Rothschild Tricolore Rendement, Edmond de Rothschild Asset Management (France) identifies an ESG issue in sufficient detail to enable regular progress reports,
  • We set a target horizon (i.e. 24 months) that is long enough to allow companies to make the necessary changes,
  • We have set up a consultative and monitoring body empowered to check the reality and the continuity of our Engagement initiatives: the "Voting and Engagement Committee".
  • We communicate regularly with the companies and the general public (the "Annual Report on voting rights" and, the "Annual ESG Engagement Report for Edmond de Rothschild Tricolore Rendement").

Measures taken if Engagement is successful or unsuccessful

At the end of the engagement period, and if the dialogue was unsuccessful, Edmond de Rothschild Asset Management (France) may submit resolutions to the Shareholder Meetings, or join shareholder coalitions.

If a company shows no tangible improvement on a given ESG issue, the stock's weighting within the portfolio of Edmond de Rothschild Tricolore Rendement may be reduced, or the position even sold. These extreme outcomes will only be considered as a last resort, and following Edmond de Rothschild Asset Management (France)'s unsuccessful prompting of the company concerned. We believe in establishing a constructive and positive process over a long-term perspective.

If the engagement action proves successful, the fund manager may maintain or strengthen the weight of the stock in the portfolio to reflect improved confidence in the company's performance potential or ability to mitigate corporate risks.

As an example, Edmond de Rothschild Asset Management (France)'s investment team has initiated a dialogue with Atos, as it was concerned about the HR KPI it follows. The meetings with the management reassured the analysts and showed that the subject was taken seriously. The management gave some interim  figures collaborating this view


Process for engagements conducted via collaborations

LEA 05. Process for identifying and prioritising collaborative engagement

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

05.1. Indicate whether your organisation has a formal process for identifying and prioritising collaborative engagements

05.2. Describe the criteria used to identify and prioritise collaborative engagements.

05.3. Additional information [Optional]

Collaborative engagement is complementary with our individual engagement because it mainly allows us to :

  • benefit from synergies with others active investors (eg: means, research, preparation of the engagement action)
  • increase the impact of the engagement

Until now, Edmond de Rothschild Asset Management (France)'s RI team keeps a close watch of on-going shareholder coalitions (eg.  PRI’s Collaboration Platform), examines the consistency with its Policies (Responsible Investment Policy, Voting Policy, Engagement Policy), assesses whether it would be relevant for Edmond de Rothschild Asset Management (France) to join up and at what level of involvement (as a simple supporter or active contributor) . We are also watchful of players who contact us with a view to joining shareholder coalitions In 2016 and 2017, we were part to the PRI clearing house engagement on the methane in oil and gas sector. Our clients interests in these subjects comforted us to continue this engagement.


LEA 06. Objectives for engagement activities

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

06.1. Indicate if you define specific objectives for your engagement activities carried out collaboratively.

06.2. Indicate if you monitor the actions companies take during and following your collaborative engagements.

06.3. Indicate if you do any of the following to monitor and evaluate the progress of your collaborative engagement activities.

06.4. Additional information. [Optional]

Before joining a collaborative engagement initiative, we ensure that we are in full agreement with the objectives of this action and with the operational methods used, to ensure that the engagement process remains constructive: the action must not be in contradiction with our own ESG factor analysis, voting and engagement policies. The experience, know-how and values that characterize the leaders of any such action are also looked at closely so that we can engage confidently throughout the process, which can last for several months or even years.

We monitor the engagement actions we are involved in on a direct and permanent basis. This process involves a close monitoring of the answers given by the company(ies) regarding the given issue. We are also in regular contact with the investors who initiated the action and communicate on the progress made, from the launch to the final conclusion.

Depending on our degree of interest in the engagement action we are supporting (for instance in relation to the weighting of the stock in Edmond de Rothschild Asset Management (France)'s portfolios) and which may have an impact on our investment decisions, we may also engage operationally alongside the action leaders. In return, we expect to be involved in the decision-making process for the entire duration of the engagement.

Whether conducted on an individual or collaborative basis, these engagement actions are very carefully selected and the results feed our expertise as a responsible investor. Year after year, the feedback received from every single action helps to enrich our ESG and engagement analysis process and improve our investment teams' proprietary knowledge on ESG integration.

 

EXAMPLE OF A COLLABORATIVE ENGAGEMENT INITIATIVESUPPORTED

In 2016, Edmond de Rothschild Asset Management (France) joined the PRI engagement group on methane emissions. This action was followed with concrete actions by the companies, as in n November 2017 senior executives from top operators signed principles to cut emissions  from natural gas production, transportation and consumption.  As members of the collaborative engagement, we will continue to encourage these companies as they roll out this commitment.

On the corporate governance issue, Edmond de Rothschild Asset Management (France)  co-filed a resolution at the shareholder meeting in 2017 requesting for the respect of the principle “one share one vote”. The resolution gained 52.4% support but required a two-thirds majority to be passed.

 


General processes for all three groups of engagers

LEA 09. Share insights from engagements with internal/external managers

09.1. Indicate if insights gained from your engagements are shared with your internal or external investment managers.

Type of engagement

Insights shared

Individual/Internal staff engagements

Collaborative engagements

09.2. Additional information. [Optional]

Whether they are conducted on an individual or collaborative basis, these engagement actions are very carefully selected and the results feed our expertise as a responsible investor. Year after year, the feedback received from every single action helps to enrich our ESG and engagement analysis process and improve our investment teams' proprietary knowledge on ESG integration.

The outcome of these actions helps feed our stock specific ESG assessment and may have an impact on investment decisions within our SRI funds. In the event of an unsatisfactory response, a company's ESG rating can be downgraded; this will affect our confidence in the stock and cause the weightings to be reduced, or the stock to be exited from the portfolio. We communicate on the outcome of any engagement action to our investment teams who will decide on their own on the impact this may have on the management of their funds.


LEA 10. Tracking number of engagements

10.1. Indicate if you track the number of your engagement activities.

Type of engagement
Tracking engagements

Individual / Internal staff engagements

Collaborative engagements

10.2. Additional information. [OPTIONAL]

Edmond de Rothschild Asset Management (France) ensures that a constructive dialogue is established with the target company, and that this company is receptive to tackling the ESG challenge(s) that have been identified. Furthermore, Edmond de Rothschild Asset Management (France) ensures it has the means and resources needed to monitor its Engagement initiatives:

• For each company held by the fund EdR Tricolore Rendement, the RI and European equity investment teams identify ESG issues in sufficient detail to enable regular progress reports;

• We set a target horizon (i.e. 24 months) that is long enough to allow companies to make the necessary changes;

• We have set up a consultative and monitoring body empowered to check the reality and the continuity of our Engagement initiatives: the “Voting and Engagement Committee”.

 

In addition, Edmond de Rothschild Asset Management (France) publishes annual voting and engagement reports which are freely available on our website(http://www.edmond-de-rothschild.com/site/France/en/asset-management/our-expertise/socially-responsible-investment). These reports provide an overview of our votes in shareholder meetings and engagement efforts with companies in the portfolio. As far as engagement action is concerned, please note that we only communicate on the details once the action is over to prevent any interference with the on-going dialogue: we ensure that external communication on our engagement actions does not upset the relations of trust we have with the companies, and that dialogue and progress can be sustained over the long-term.


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