Other: PRI Assessment & Sustainability rating Morningstar
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.