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La Française Group

PRI reporting framework 2019

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (A) Implementation: Screening

(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]


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