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Rothschild & co Asset Management

PRI reporting framework 2018

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ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

01.1. Indicate 1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and 2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.

SSA
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

We are primarily an active high alpha / high conviction investment management company. Investment decisions are based on an in-depth fundamental analysis of stocks. Our ESG approach is based on screening and integration for the following reasons:

- All our investments in FI follow a screening filter which allows us to guarantee an ethical base to our investments: (i) normative exclusions of companies whose business is related to cluster bombs and anti-personnel mines, in accordance with the Oslo Treaty and the Ottawa Convention signed by the French Government and (ii) exclusions based on fundamental principles

- We started ESG integration in 2011 among our equities investments to strengthen our analysis process, we then deployed our ESG process among our FI investments. We believe that ESG analysis reinforces our understanding of long-term sectors and corporates risks and opportunities. In our investment process, ESG criteria contribute among other financial criteria to support our investment choices and to our convexity analysis

- Moreover, ESG integration supports our dialogue with TOP management on ESG issues: (i) it allows us to have precise data to discuss, (ii) it helps follow the trends in terms of ESG achievements at each companies ’level

01.3. Additional information [Optional].

Besides exclusions, our ESG process relies on both a qualitative and a quantiative approach:

- Qualitative analysis: For each sector we invest in, we identify the main ESG challenges and opportunities. We then analyze the response of companies: for each E, S, and G criteria we highlight strengths and weaknesses. We pay a particular attention to the trend in terms of initiatives and integration of E, S and G problematics by TOP management. We also identify the main carbon contributors of each portfolio and we analyze these companies specific carbon risks and trajectory.

- Quantitative analysis : an ESG score is attributed to companies (covered by MSCI ESG Research) . We have created an internal ESG rating for each company in our investment list for both European and US equity and FI. This is partly based on the independent ESG rating provided by MSCI which is enriched with our own assessment of ESG analysis for each company we cover. Our rating methodology includes both absolute criteria to take into account sector challenges and relative criteria to highlight the best / worst performers among the sectors we invest in.


FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

03.2. Describe how your ESG information or analysis is shared among your investment team.

          Our internal IT tool allows fund managers and analysts to access ESG ratings, newsflows and internal ESG analyses
        

03.3. Additional information. [Optional]


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

- Mandatory exclusions: Land mines and cluster munitions, checked on a yearly basis

- Discretionary exclusions: Companies that  do not respect principles in the field of human rights, labor, environment and anti-corruption, criteria which are mainly derived from the UN Global Compact's ten principles: update on a quarterly basis

04.3. Additional information. [Optional]


FI 05. Negative screening - overview and rationale

05.1. Indicate why you conduct negative screening.

SSA

SSA

Corporate (financial)

Corporate (fin)

Corporate (non-financial)

Corporate (non-fin)

05.2. Describe your approach to ESG-based negative screening of issuers from your investable universe.

All our investments in FI follow a screening filter which allows us to guarantee an ethical base to our investments:

(i) normative exclusions of companies whose business is related to cluster bombs and anti-personnel mines, in accordance with the Oslo Treaty and the Ottawa Convention signed by the French Government

and (ii) exclusions based on fundamental principles in accordance with the values we want to respect in our funds

05.3. Additional information. [Optional]


FI 06. Examples of ESG factors in screening process (Not Completed)


FI 07. Screening - ensuring criteria are met

07.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening?
Norms-based screening

07.2. Additional information. [Optional]


(C) Implementation: Integration

FI 11. Integration overview

11.1. Describe your approach to integrating ESG into traditional financial analysis.

Our integration process relies on the following key elements:

Exclusion criteria :

We ban companies that have land Mines & Cluster munitions activities and identify companies that do not respect Fundamental Principles in the field of human rights, labor, environment and anti-corruption, criteria which are mainly derived from the UN Global Compact's ten principles.

Qualitative analysis: For each sector we invest in, we identify the main ESG challenges and opportunities (common approach and analyses with the Listed Equity investments).

We then analyze the response of companies (through our own analysis or through external research): for each E, S, and G criteria we highlight strengths and weaknesses. We pay a particular attention to the trend in terms of initiatives and integration of E, S and G problematics by TOP management.

We also identify the main carbon contributors of each portfolio and we analyze these companies specific carbon risks and trajectory.

Quantitative analysis :

An ESG score is attributed to each company. We have created an internal ESG rating for each company in our investment list for both European and US equity and FI. This is partly based on the independent ESG rating provided by MSCI which is enriched with our own assessment of ESG analysis for each company we cover. Our rating methodology includes both absolute criteria to take into account sector challenges and relative criteria to highlight the best / worst performers among the sectors we invest in.

 

Common objective: We set a common minimum rating objective among our portfolios. Ratings and data are increasingly integrated in our funds management tools (reporting / common data base…).

11.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

SSA

Regarding SSA, besides traditional financial and economic analysis, ESG integration and analyses provided by MSCI ESG Research allow us to have a complete view of the regulatory ESG framework existing in a country and its current ESG objectives. It allows us to enhance our fundamental view and to anticipate debt / regulatory issues. In our "gross rating" each ESG pillar is weighted with a 33% weight to reflect all ESG challenges affecting countries. We are also working on carbon issue integration in our analyses.

Corporate (financial)

Regarding financial institutions: ESG analyses and integration methodology are really complementary to traditional Financial institutions fundamental analyses as the financing sector faces ESG challenges on each pillar: i) environment: financing of the energy transition, exposure to stranded assets and energy transition risks, etc, (ii)  social: digitalization, data privacy and security, evolution of the consumption habits, (iii)  governance: litigations, consolidation are key long-lasting elements to watch that influence the strategy Etc.  Our methodology and analyses help us to pay attention to these specific topics that are not always necessarily included in traditional financial analyses.

 

Corporate (non-financial)

Our ESG integration methodology on corporates allows us to have a more comprehensive view on sectors and companies we invest in. It helps us to identify, according to each sector, key ESG issues and to analyse the answer provided by each company.

Our rating methodology including both "gross" (or cross sector) and "best in class" indicators allows us to monitor the ESG risk exposure we agree to have on each stock considering both the challenges inherent to its sector and the strategy adopted to face ESG challenges.

 

11.3. Additional information [OPTIONAL]


FI 12. Integration - ESG information in investment processes

12.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is integrated into security weighting decisions
ESG analysis is integrated into portfolio construction decisions
ESG analysis is a standard part of internal credit ratings or assessment
ESG analysis for issuers is a standard agenda item at investment committee meetings
ESG analysis is regularly featured in internal research notes or similar
ESG analysis is a standard feature of ongoing portfolio monitoring
ESG analysis features in all internal issuer summaries or similar documents
Other, specify

12.2. Additional information [OPTIONAL]

We developped a database integrating both financial and ESG analyses. It also includes carbon analyses on the main contributors of our portfolio.

We tend to reach high research coverage through our external data provider (at least) and through internal research.


FI 13. Integration - E,S and G issues reviewed

13.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
SSA

Environmental

Social

Governance

Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

13.2. Please provide more detail on how you review E, S and G factors in your integration process.

SSA

We refer to the MSCI ESG Research Country score to provide an ESG rating to the different SSA we invest in after checking exclusion criteria.

This rating includes Environmental, Social, Governance criteria such as energy use, greenhouse gas emissions, employee safety and diversity, corporate governance and each pilar; E,S and G has the same weight in the final attibuted rating.

We also check recent news flow regarding the SSA in portfolio and we might take into consideration in our analysis information provided by our economist.

In 2017, we paid particularly attention to the European political context.

Corporate (financial)

Regarding financial issuers, after checking the exclusion criteria,

- we use the MSCI ESG Research scoring data to calculate a rating .

- in our "gross rating" , we overweight the the Governance criteria as Banks and Insurers play a major role in the international financial system and they are key elements in identifying eventual frauds.

We also pay attention to their adaptation strategy to face digitalization and evolution of working conditions and their involvement in financing energy transition.

 

Corporate (non-financial)

For non-financial corporates, after checking exclusion criteria, we use the MSCI ESG Research scoring data base and implement a sectoral approach.

For each Business sector, we apply a specific weight to each ESG criteria used in the MSCI ESG Research rating for the gross part of our rating, as risks are not the same for all sectors.

We also pay additional attention to the biggest carbon issuers of our portfolio: checking their carbon risk exposure and the initiatives implemented to face the forthcoming challenges.

13.3. Additional information.[OPTIONAL]


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