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Santander Empleados Pensiones, F.P.

PRI reporting framework 2019

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

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
100 %
Total actively managed listed equities 100%

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

As earlier stated, our screening process is divided into two components/criteria. We use the exclusion criteria to ensure that we obtain an investable universe formed by socially responsible companies. On the other hand, the value criteria allows us to identify the best ESG performers and follow a best-in-class approach in every sector. With this, we aim to accomplish our objective of having an investment process that produces an investable universe composed by socially responsible companies and a selection of the best ESG performers in their sector. These strategy is drafted by the Control Commission of the pension fund and implemented by the fund managers.

Our screening for exclusion criteria seeks to weed out companies that engage in the following controversial activities:

  • Inappropriate use of nuclear energy
  • Toxic waste related activities
  • Environmental Pollution
  • Child Labour
  • Universal Declaration of Human Rights breachment
  • Child Pornography
  • Manufacturing or sale of a finished product/strategic parts of cluster ammunition, anti-personnel landmines or nuclear weapons
  • Irresponsible advertisement of alcohol, tobacco, pornography or gambling related products

The exclusion of these companies from our investable universe ensures that we avoid investments in those companies that do not have responsible business practices.

The value criteria screening allows us to apply our own standards to the information we receive from our ESG information third party provider. We obtain information from 5 different impact areas:

  • Environment
  • Corporate Governance
  • Human Rights
  • Stakeholder Relationship
  • Other Ethical Concerns

Our value criteria is the ESG rating that a company receives based on our analysis. This process involves using the ESG performance indicators we receive from our ESG information third party provider for the 5 different impact areas. This data is then subject to 2 considerations. First, we add weight to those specific ESG issues that are deemed as more important by our ESG/SRI Team in order to obtain a global picture of a company’s ESG performance. Secondly, we identify sector-specific issues incorporate them into our analysis to derive a fair ESG score. We add a second ponderation to the selected indicators that takes industry into account in order to ensure that our investment approach results in a best-in-class selection for every sector. Using emissions as an example, a company that underperforms in this matter in the Energy sector will be penalized in a greater manner than a company that underperforms in the Finance sector, thus taking into account the impact this industry has on the environment. Using these 2 weightings we obtain our final ESG score, which takes into account the importance of ESG issues and their impact at a sector level. This score leads us to select the best-in-class companies from our investable universe.

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


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 

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

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]

When a company is attractive as a potential investment within our investment universe and breaches our exclusion criteria, the Control Commission can take the decision to follow an engagement process with this company. A formal letter is sent by the pension fund to the corporation involved asking them for information regarding the incident, giving them the right to defend their position and enquiring about the incident that has led them to this situation. Depending on the company’s feedback the Commission Control can decide to maintain this company in our investment universe or exclude it. In terms of proxy voting information, it is shared with the fund managers, yet it does not affect investment decisions.


(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

We exclude companies when they are related to or engage in the following activities:

  • Inappropriate use of nuclear energy
  • Toxic waste related activities
  • Environmental Pollution
  • Child Labour
  • Universal Declaration of Human Rights breachment
  • Child Pornography
  • Manufacturing or sale of a finished product/strategic parts of cluster ammunition, anti-personnel landmines or nuclear weapons
  • Irresponsible advertisement of alcohol, tobacco, pornography or gambling related products

Screened by

Description

As it was earlier stated, we obtain an overall ESG rating via a 2-step process. We use the data provided by Vigeo-Eiris and give a greater weight towards the overall score to the indicators that concentrate on the main ESG issues. This same process is repeated but taking into account the impact each indicator has on each of the 11 GICS Sectors in order to obtain a final ESG rating for companies that takes into account both, their overall ESG performance and their sector-specific impact. 

Screened by

Description

Some of the indicators that we use to determine the ESG Rating of our companies directly derive from the principles in these conventions.

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

Screening criteria is established by the ESG/SRI team based on the ESG approach depicted by the Control Commission in the investment policy. The review of the criteria in our investment process is performed on an ad-hoc basis. The Control Comission, governing organ of the pension fund, is notified about the status of the investment policy twice a year and clients and beneficiaries recieve information about the pension fund/any changes to policies every 4 months. 


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.

05.5. Additional information. [Optional]

We update our records from third party ESG information every 4 months. 


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.

In the case that during our trimestral screening update a company has breached one or more of our exclusion policies, the Control Commision decides whether to start an engagement process with the company or divest from it directly. In case of engagement, a formal letter is sent by the pension fund to the corporation involved asking them for information regarding the incident, giving them the right to defend their position and enquiring about the incident that has led them to this situation. If the result from this process is negative, the pension fund divests from the company. The list of excluded companies is sent to the fund managers who have 6 months to divest in such a way that does not affect the value of the portfolio. 

06.3. Additional information.[Optional]


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