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Edmond de Rothschild Asset Management (France) (EDRAM)

PRI reporting framework 2018

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You are in Indirect – Manager Selection, Appointment and Monitoring » Selection

Selection

SAM 02. Selection processes (LE and FI)

02.1. Indicate what RI-related information your organisation typically covers in the majority of selection documentation for your external managers

Your organisation’s investment strategy and how ESG objectives relate to it

ESG incorporation requirements

ESG reporting requirements

Other

No RI information covered in the selection documentation

LE

FI - SSA
FI - Corporate (non-financial)
Investment strategy and how ESG objectives relate to it
ESG incorporation requirements
ESG reporting requirements
Other
No RI information covered in the RFPs

If you select any 'Other' option(s), specify

Other: PRI Assessment & Sustainability rating Morningstar

02.2. Explain how your organisation evaluates the investment manager’s ability to align between your investment strategy and their investment approach

Strategy

Assess the time horizon of the investment manager’s offering vs. your/beneficiaries’ requirements

Assess the quality of investment policy and its references to ESG

Assess the investment approach and how ESG objectives are implemented in the investment process

Review the manager’s firm-level vs. product-level approach to RI

Assess the ESG definitions to be used

Other

None of the above

LE

FI - SSA
FI - Corporate (non-financial)
Assess the time horizon of the investment manager’s offering vs. your/beneficiaries’ requirements
Assess the quality of investment policy and its reference to ESG
Assess the investment approach and how ESG objectives are implemented in the investment process
Review the manager’s firm-level vs. product-level approach to RI
Assess the ESG definitions to be used
Other
None of the above

ESG people/oversight

Assess ESG expertise of investment teams

Review the oversight and responsibilities of ESG implementation

Review how ESG implementation is incentivised

Review the manager’s RI-promotion efforts and engagement with the industry

Other

None of the above

LE

FI - SSA
FI - Corporate (non-financial)?
Assess ESG expertise of investment teams
Review the oversight and responsibilities of ESG implementation
Review how is ESG implementation enforced /ensured
Review the manager’s RI-promotion efforts and engagement with the industry
Other
None of the above

Process/portfolio construction/investment valuation

Review the process for ensuring the quality of the ESG data used

Review and agree the use of ESG data in the investment decision making process

Review and agree the impact of ESG analysis on investment decisions

Review and agree ESG objectives (e.g. risk reduction, return seeking, real-world impact)

Review and agree manager’s ESG risk framework

Review and agree ESG risk limits at athe portfolio level (portfolio construction) and other ESG objectives

Review how ESG materiality is evaluated by the manager

Review process for defining and communicating on ESG incidents

Review and agree ESG reporting frequency and detail

Other, specify

None of the above

LE

FI - SSA
FI - Corporate (non-financial)?
Review the process for ensuring the quality of the ESG data used
Review and agree the use of ESG data in the investment decision making process
Review and agree the impact of ESG analysis on investment decisions
Review and agree ESG objectives (e.g. risk reduction, return seeking, real-world impact)
Review and agree manager’s ESG risk framework
Review and agree ESG risk limits at athe portfolio level (portfolio construction) and other ESG objectives
Review how ESG materiality is evaluated by the manager
Review process for defining and communicating on ESG incidents
Review and agree ESG reporting frequency and detail
Other, specify
None of the above

If you select any 'Other' option(s), specify

ESG people/oversight : Verification of the presence of internal and external resources dedicated to RI, and access to ESG information by management teams

Process/portfolio construction/investment valuation : Review the Sustainability Rating Morningstar for the funds

02.3. Indicate the selection process and its ESG/RI components

02.4. When selecting external managers does your organisation set any of the following:

ESG performance development targets

ESG score

ESG weight

Real economy influence

Other RI considerations

None of the above

LE

FI - SSA
FI - Corporate (non-financial)?
ESG performance development targets
ESG score
ESG weight
Real world economy targets
Other RI considerations
None of the above

If you select any 'Other' option(s), specify

02.5. Describe how the ESG information reviewed and discussed affects the selection decision making process.[OPTIONAL]

          Methods for collecting ESG information
Our information questionnaire on ESG and SRI integration is the starting point for our ESG analysis of external funds. Developed and sent in 2016 to 257 funds on our list of referenced funds, managed by 117 asset management companies, the response rate was very high with 92% of returns. The questionnaire includes 43 indicators divided into 11 items characterising the management company’s RI approach and the RI/ESG characteristics of the fund(s) referenced or of a new candidate fund. In addition, on this occasion, a request for documentation was also made, notably to obtain the RI Private Transparency report and matching Assessment report, or else the fund’s SRI transparency code if it is categorised as SRI. The data collated was integrated in the internal tools (Felix and EDRAM Viewer) in order to generate statistical treatments and to be presented in a simplified form, with icons to help the portfolio managers easily identify key information such as whether the management company is a PRI signatory, the existence of an ESG integration approach, the categorisation as an SRI fund, or the application of an exclusion policy. 

This exploratory analysis helped identify: 
-	in 2016, that 10% of the referenced funds were SRI funds, 57% integrated ESG in their analysis, 43% excluded anti-personnel mines and cluster bombs, and 17% measured their carbon footprint. Regarding the management companies that manage these funds, 83% were PRI signatories, 70% had implemented a voting policy integrating ESG issues and 62% had an engagement policy.
-	as of December 31st, 2017, that 236 traditional funds had completed our proprietary ESG and SRI questionnaire and had a rating determined by the funds selection team, among which : 
	78.8% are managed by a PRI signatory manager,
	59.4% apply a normative exclusion related to cluster bombs and anti-personnel mines
These statistics have been calculated based on managers’ declarations over the last two years.

Our ESG analysis, and the corresponding assessment, are primarily qualitative. The Fund Selection team can express opinions on the ESG analysis by: 
-	awarding a star for SRI funds in our Sustainable selection that stand out for their strong positive environmental or social impact, while achieving a satisfactory level of performance,
-	giving their viewpoint on the positives of SRI funds and potential problem areas concerning mainstream funds, should our fund managers/analysts find them to be lacking on ESG issues
-	sharing their insight on the PRI ratings of the management company and on the Morningstar Sustainability Rating.

We aim to update our SRI/ESG survey every two years, with the next update scheduled before the summer of 2018. 

Use of ESG information in the selection
The ESG information collated via our ESG/SRI proprietary questionnaire will help detect key discussion points to be addressed with the managers of the targeted funds, based on the proportionate objective we have in the Selection phase: 
-	for the referencing of external mainstream funds destined for our multi-management and asset allocation expertise: this information will not be discriminatory in the selection process, but will determine those funds for which an ESG dialogue will be a priority, for example for not being a PRI signatory, for not excluding companies with activities in anti-personnel mines/cluster bombs, or for those having failed to respond concerning the measurement of their portfolios’ carbon footprint. These questions will be integrated in a targeted manner, but form part of our ESG integration process based on a strategy for influence with the funds so as to encourage them to integrate best responsible investment practices, particularly by signing the PRI, integrating ESG into risk management or being more transparent about any ESG information that might be requested. 
-	for the selection of sustainable funds: the response to the questionnaire sheds light on an initial profile of the SRI quality of the fund and that of its management company, but it will lead to an analysis of the documents obtained. These two sources of information will help feed an ESG interview based on in-depth, personalised questions in view of appointing/referencing the fund. For example, in the choices checked under SAM 02.2., we pay particular attention to assessing the fund’s ESG objectives and how these objectives are implemented in the investment process (i.e. stock selection process), the investment teams’ ESG expertise and their level of responsibility in the implementation, and how the ESG materiality is assessed by the portfolio manager.
In 2017, the Fund Selection team met around 35 management companies managing referenced or candidate funds, with which ESG issues were addressed.
        

SAM 03. Evaluating engagement and voting practices in manager selection (listed equity/fixed income)

03.1. Indicate how your organisation typically evaluates the manager’s active ownership practices in the majority of the manager selection process.

(Proxy) voting

Review the manager’s voting policy

Review the manager’s ability to align voting activities with clients’ specific voting policies

Review the manager’s process for informing clients about voting decisions

Ensure whether voting outcomes feed back into the investment decision-making process

Review the number of votes cast as a percentage of ballots/AGMs or holdings and available rationale

Other voting issues in your selection process; specify

None of the above

LE

Review the manager’s voting policy
Review the manager’s ability to align voting activities with clients’ specific voting policies
Review the manager’s process for informing clients about voting decisions
Ensure that voting outcomes feed back into the investment decision-making process
Review the number of votes cast as a percentage of ballots/AGMs or holdings and available rationale
Other active ownership voting issues in your selection process; specify
None of the above

If you select any 'Other' option(s), specify

03.2. Describe how you assess if the manager’s engagement approach is effective.

          % of votes at shareholders meetings
        

03.3. Describe how you assess if the manager’s voting approach is effective/appropriate

          % of votes at shareholders meetings
        

03.4. Additional information [OPTIONAL]

          For delegated outsourced management: only two of our four management delegations are equity funds; that said, the management companies that manage these two funds (i.e. EDR Japan and EDR US Growth) apply their own voting policy, but one of them has been reporting to us on its voting statistics for several years, and the other since the end of 2017. 
For our fund selection expertise, concerning the active ownership policy, we review if the fund has formalised a voting policy that includes the treatment of environmental and social resolutions, exercises its voting rights and reports on its practices on ESG engagement, and that it discloses the number of companies that it has engaged with. Concerning voting and engagement activities, we have not made any specific, strict ESG requirements, but during the meetings in the context of the SRI mandate fund selection, we screen the portfolios’ composition: if we have any doubt about the ESG quality of an issuer that could downgrade the ESG performance and the positive impact that we expect for our selection and appointment of high-quality ESG funds, we ask the asset manager to engage with the company concerned. We also discuss the voting rights, more in respect of their position on certain issues, such as management compensation versus the company’s long-term interest, rather than how they exercise their voting rights. This demand on active ownership is about to become more structured and traceable in 2018 in order to showcase our proportionate influence approach on engagement activities
        

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