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La Française Group

PRI reporting framework 2019

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ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
90 %
Percentage of active listed equity to which the strategy is applied (+/- 5%)
10 %
Total actively managed listed equities 200%

01.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

Our Responsible Investing approach takes as a starting point the fact that the world is changing in a fast and often disruptive way. This means that the competitive environment in which large companies operate has become more complex and overwhelming.

1. This new environment poses many unprecedented challenges for businesses. Let's take two examples. On the physical side, we have the growing demand for energy, food, and natural resources coupled with climate change. On the societal side, companies are surrounded by groups of stakeholders, bigger, more diverse, more demanding and more knowledgeable than ever.

2. These new challenges require a re-newed focus on core skills for the companies:
 a) Innovation
 b) Adaptability
 c) Stakeholders management
 d) Environmental and social durability
 
 The businesses of the future will be those who are successful in developing these skills and features.

3. To find tomorrow's corporate leaders, we have to create innovative models and approaches for investing. Our teams have spent many years researching and improving those models.

Our vision of financial analysis therefore combines distinct dimensions and realities of a company: accounting, environmental, human and governance as well as strategic in the form of innovation capacity and adaptability. The adaptability is analysed in the context of worldwide megatrends and the consequences they bear as well the disruption they involve.

All these dimensions are integrated without an 'a priori' hierarchy but considering potential retroactions between them and their distinct temporalities. We consider that these dimensions interact to influence the future of those companies we select and that they translate into greater recurrence of financial flows. We are able to better assess the levels of risks associated with growth and return perspectives and therefore the fair value of the companies scrutinized.

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

The exclusion is based on controversial weapons and is a prerequisite for all our investments.

ESG watch lists for negative screening based on our in-house ESG scoring model apply for all investment universes.

ESG integration for all companies in the universes is done via ESG scoring. Scores are available to all members of the investment team.

Thematic investing: Zero Carbon funds (environment- climate change)


LEI 02. Type of ESG information used in investment decision

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

02.2. Indicate if you incentivise brokers to provide ESG research.

02.3. Describe how you incentivise brokers.

La Francaise has set up a rating process of the brokers’ research. This process, among other factors, takes into account the ESG quality in the selection/scoring of brokers.

02.4. Additional information.[Optional]


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

We have developed a proprietary system within Factset, through RMS (Research Management System) that allows our analysts and portfolio managers to post their research notes, company meeting notes, any ESG and financial related notes on dedicated pages we have developed.


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

Landmines and cluster bombs are systematically excluded; they are flagged in the IT system and cannot appear in the investment universes.

Each of the worst E, S and G scores are excluded from the initial investment universe.

Screened by

Description

The securities in each fund's spectrum of investments are classified in one of four macro sectors: Finance, Service, Industry and Consumers. The investment process for equities revolves around an ESG ranking (1) and a financial ranking (2) within each macro sector.

Screened by

Description

These conventions are integrated in Inflection Point’s due diligence process.

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

LFAM's management philosophy is based on the integration of financial, ESG and strategic analysis, which supports stock picking at all levels by combining:

·        ‘Traditional’ financial analysis criteria

·        A non-traditional, more strategic and forward-looking company, sector and thematic research in order to find the best-managed companies

·        An analysis of the companies' megatrends exposure

·        An ESG analysis integrating ESG criteria together with a strategic analysis based on capacity of corporates to innovate and adapt (our 5 factors analytical model)

·        The non-traditional research is founded on an analysis of the environmental, social and governance risks that specifically apply each sector and company. It is also grounded in compliance with standards that are widely recognized and internationally endorsed such as the UN Global Compact principles or the exclusion of companies linked to controversial weapons. Accordingly, any company that is found to be violating these principles will be excluded from the investment universe.

More precisely, these five factors analyse:

·        The environment: dependence on commodities, management of carbon emissions, energy efficiency, pollution, management of waste and water, etc.

·        Human capital: workers' rights, turnover, structures for training and acquiring knowledge, corporate governance, etc.

·        Organisational capital: corporate governance, relations with regulators, suppliers and the supply chain, local communities, customers, etc.

·        Innovation capacity: innovation culture, internal structures dedicated to innovation, R&D, new products brought to market, etc.

·        Adaptability and responsiveness: management structures, ability to gather and organise information, strategic agility, public relations, etc.

In addition, we conduct an evaluation of the companies' exposure to global megatrends that will shape their economic and competitive landscape. The question is whether or not these companies will be able to put themselves in a position to benefit from these underlying trends. This analysis takes a sharp look at the nature of their businesses, products promoted, the strategies they have unveiled and the countries/regions in which they are present or will be in the future.
 The ten megatrends include:

·        Transportation - Mobility

·        Healthcare burden

·        Access to knowledge

·        Energy demand growth

·        Changing consumer demographics

·        Urbanization and infrastructure needs

·        Climate change

·        Food, land resources and biodiversity

·        Scarcity of raw materials

·        Water availability and quality

 

The ESG assessment (scoring) is updated every month as part of the data based research conducted by Inflection Point. Depending on exogenous factors (publication of new elements, sudden controversies, etc.) or internal events (a manager's specific interest in a given company) some companies might be reviewed more often by the research analysts, who will make adjustments to the scores if required.

The 5-factor model set up by Inflection Point is stable (last major review in H2/2016). The underlying KPI's are being reviewed regularly and updated - especially if new data sources become available. The relative weightings of the model are reviewed at least annually.  


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

06.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

To ensure compliance with the SRI approach and to factor in the results of ESG analysis into our portfolios, a three-level control procedure has been developed:

1.       1st level control by the dealers before executing the buy order

2.       then post-trade by the risk department

3.       internal control is in charge of level 2 control

   

06.3. Additional information.[Optional]


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

La Française Lux Inflection Point Carbon Impact Global and La Française Lux Inflection Point Carbon Impact Euro are funds dedicated to the energy transition challenges that invests through the energy transition lens in all sectors including selected incumbents energy providers as well as solution providers for a low carbon future.

 


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information.[Optional]

Information is shared via customised Factset IRN (Internal Research Notes) in the FactSet RMS application.


LEI 10. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

10.3. Describe how you integrate ESG information into portfolio weighting.

For one of the fund, optimization of carbon footprint under tracking error minimization constraint

10.4. Describe the methods you have used to adjust the income forecast / valuation tool

Adjustment of risk premia

10.5. Describe how you apply sensitivity and/or scenario analysis to security valuations.

We are using the TPI (Transition Pathway Initiative) scenario analysis to assess some of the security under review.

10.6. Additional information. [OPTIONAL]


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