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Rothschild & co Asset Management

PRI reporting framework 2018

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(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 baseā€¦).

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 featuresĀ 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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