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Triodos Investment Management B.V.

PRI reporting framework 2018

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

(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

Triodos Investment Management applies a three step process for the ESG screening of companies:

Step 1: Sustainable activities. We've identified certain types of products and services that contribute to the health and wellbeing of people and planet. A company that derives over 50% of its revenues from such sustainable activities qualifies for investment by one of our SRI funds, provided they also pass step 3.

Step 2: Best-in-class. A company that does not derive over 50% of its revenues from sustainable activities (step 1) can still qualify for investment if its all-round sustainability performance puts it among the best in its industry. Triodos Research assesses this using over 70 generic and sector-specific criteria, relating to environmental, social and governance issues. A company whose score puts it in the top 50% within its industry qualifies for investment, provided they also pass step 3.

Step 3: Minimum standards. Our minimum standards are the bottom line: they ensure that we do not fund a company that is engaged in activities that are harmful to individuals, society or the environment. Companies that qualify through steps 1 or 2 must also meet these standards before we'll consider investing in them.

Sovereign bond process: see 04.3.

04.3. Additional information. [Optional]

Sovereign bonds are also selected in a three-step process, screening the effectiveness of a country's democratic process and the level of safety provided to its citizens:

Step 1. Countries must belong to the 50 best functioning democracies within the group of 100 largest economies.

Step 2. Countries must be free of boycotts supported by the United Nations.

Step 3. Countries must underwrite the most important, broadly supported environmental, social and human rights treaties and conventions of the United Nations.

Information provided refers to 2017. Please note that, as of April 2018, Triodos Investment Management will bring the asset management of its SRI funds in-house. As of that month, a team of investment analysts will integrate the ESG and the financial performance in their analysis of companies and countries, resulting in the definition of the investment universe. Related organisational changes are being implemented and expected to be fully in place by the end of 2018. See FI 01.3


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.

Our minimum standards ensure that unsustainable products, like weapons and nuclear power, and unsustainable production processes, such as the violation of human rights and environmental damage, are excluded from our sustainable investment universe. But they also include preset requirements for policies and programmes that show the company is aware of the sustainability risks of its industry and that it takes action to mitigate these risks.

05.3. Additional information. [Optional]


FI 06. Examples of ESG factors in screening process

06.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

German and EU investigations are ongoing on anti-trust activities of German car manufacturers, including BMW. As long as no conclusions have been drawn, BMW is "under review". This is an advice to fund managers to not enlarge holdings in the company, because when the conclusion of the investigations are negative, this may lead to exclusion from the investment universe.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Italy was added to the investment universe. Although it did not ratify the Stockholm Convention on the ban of Persistent Organic Pollutants (POP’s), we learned that EU-membership legally enforces adherence to this convention. Therefore, autonomous ratification by Italy is not considered compulsory anymore.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

LafargeHolcim was removed from our investment universe due to lack of ethical considerations in its business’ decisions.  Prior to its merger with Holcim, former entity Lafarge was involved in alleged payments to the Islamic State (IS) to continue its business at its Syria plant in Jalabiyeh as well as allowing safe passage of its vehicles in the area before IS took over the plant site in September 2014. LafargeHolcim itself concluded that its employees operated in violation of the company’s code of conduct and CEO Olsen decided to step down as at mid July 2017.

In addition, the company expressed interest for projects that the US Trump administration intends to execute including the controversial wall along the Mexican border.

As a result of the removal from the investment universe, holdings in LafargeHolcim have been sold.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

BBVA was removed from the investment universe on account of its involvement in financing the Dakota Access Pipeline, which we consider to be a controversial project. The company was not transparent about the way it uses its influence to mitigate social and environmental challenges of this pipeline.

As a result of the removal from the investment universe, holdings in BBVA have been sold.

06.2. Additional information.


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?

other description

          four eye principle and consistency check
        
Positive/best-in-class screening

other description

          four eye principle and consistency check
        
Norms-based screening

other description

          four eye principle and consistency check
        

07.2. Additional information. [Optional]

Systematic sustainability alerts on companies selected for investment are received from Sustainalytics and in addition alerts are also picked up by Triodos Research. All alerts are checked to ensure that the companies in the Triodos Sustainable Investment Universe continue to meet our investment criteria. If a company is in breach of one of our sustainability criteria, this can lead to immediate exclusion. Delta Lloyd Asset Management is informed of this breach and the new status of the company. If the company is in the portfolio of one of the funds, Delta Lloyd Asset Management has three months time to sell our position in this company. In practice Delta Lloyd Asset Management immediately sells any stake in the company.

In August 2014, SICAV I started using an automated IT system from RBC Investor Services Bank SA (custodian and fund administrator) to ensure that no investments are made outside the Triodos Sustainable Investment Universe.

On top, every month we receive the portfolios of all funds managed by Delta Lloyd Asset Management. Triodos then checks if all companies in the portfolios are selected for sustainable investment. If this is not the case Delta Lloyd Asset Management has to sell the share immediately. In 2017 no such incident took place.

Information provided refers to 2017. Please note that, as of April 2018, Triodos Investment Management will bring the asset management of its SRI funds in-house. As of that month, a team of investment analysts will integrate the ESG and the financial performance in their analysis of companies, resulting in the definition of the investment universe. Related organisational changes are being implemented and expected to be fully in place by the end of 2018. See FI 01.3.

New IT systems will automatically prevent investment in not-selected companies or countries.


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