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LBPAM La Banque Postale Asset Management

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
18.6 %
Percentage of active listed equity to which the strategy is applied (+/- 5%)
0.5 %
Percentage of active listed equity to which no strategy is applied
80.9 %
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.

LBPAM applies a screening approach to 18.6% of its Equity strategy. We distinguish the way we apply screening strategies between our institutional mandates and our pooled funds.

1. Equity Insurance mandates:

  • In 2018, a Green & ESG Indicator was implemented for equity mandates serving as a benchmark for equity mandates
  • Exclude companies having a high-risk profile as well as companies generating revenues from the coal industry (mining and utilities).
  • Monitor companies with laggard scores (scores between 8 and 10) and use a comply or explain approach
  • Share best practices between the RI Team and the Equity Insurance Mandate team

2. The RI pooled funds are managed by the RI Equity Strategy and mainly covers European stocks. These RI equity funds invest in companies which offer solutions and innovations to the main ESG long-term challenges. We are convinced that tomorrow leaders are the one who anticipate all the stakes of sustainable development and embrace a longer-term vision.

  • We first identify companies' activities and the revenues generated from these sustainable activities. This is based on a qualitative basis and supported by the in-house RI team.
  • Then we select companies with the best practices in their industry regarding ESG issues according to our proprietary framework GREAT. The companies with scores between 1 and 5 (i.e. 50% of the initial investment universe) are selected for our RI Equity Funds.
  • Since 2016 we have decided to go beyond a Best in class approach by introducing sector bias in both our quantitative and qualitative SRI approaches. For example, we have increased the number of eligible companies within sectors which face more ESG opportunities than ESG risks. On the contrary, we have reduced the number of eligible companies within sectors facing high-risk in our investment universes. This risks/opportunity approach is also used in our bottom up analysis for our investment cases.
  • All these funds have obtained the French SRI label and have been auditted by EY.

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

LBPAM Responsable Actions Environnement is a thematic fund focused on environmental issues launched in 2009 managed by the RI Equity Strategy.

The initial universe is composed of companies providing solutions to environmental challenges (climate change, resource depletion , etc.), by managing environmental resources, developing clean technologies or improving environmental protection - for at least 20% of their revenues. These companies belong to one of the following clusters:

  • Green building
  • Circular economy
  • Renewable energy
  • Eco-solutions and services
  • Sustainable transport and mobility
  • Sustainable agriculture and nutrition

All the research used to identify companies and discard ESG risks is done within the RI Team in a qualitative basis. The Fund Manager engages with companies and meets with management to monitor the development of their business. In addition, we also monitor the companies that could integrate the investment universe either because their transition to a low carbon economy is improving or because their ESG practices have improved. All the companies composing the portfolio are screened according to our GREAT approach.

This fund has received two labels for its ESG and Green credentials, the French SRI label and the TEEC label respectively.

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 

Indicate who provides this information 

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

02.3. Describe how you incentivise brokers.

Around 5% of equity brokerage fees are allocated according to the quality of their ESG research. LBPAM believes it is a powerful incentive to help them to develop ESG research and to improve quality.

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]

During our interactions with companies around ESG issues, RI analysts meet investees' management to discuss their ESG strategy and practices. Feedbacks are written following these meetings, and can lead to a modification of ESG ratings (decision being taken collectively by the SRI department). ESG ratings are taken into account to manage funds with an ESG screening approach.

Regarding proxy voting, portfolio managers are associated to and informed of voting decisions at general meetings. Therefore they may consider it when analysing companies and making 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

  • Country exclusions: We exclude investments in countries sanctioned by the United Nations, the European Union and the French Government (ie. Irak, Iran, Lebanon, Libya..). We also exclude investments in countries included in the FATF Recommendations and countries identified as tax heavens.
  • Sector exclusion: Companies belonging to the tobacco and gambling sectors are systematically excluded of RI equity funds.
  • Within our RI funds we systematically exclude companies with ESG ratings between 6 and 10. Within our mainstream approach, we exclude stocks having laggard scores (8, 9 and 10 ratings).
  • Moreover, for all funds (SRI or not) we have a formal policy which excludes investments in companies involved in controversial weapons, encompassing the production, trading or storage of cluster munitions, landmines, chemical and biological weapons.

 

Screened by

Description

For RI funds we apply a positive selection for companies developing best ESG practices within each sector based on our internal ESG rating (scores between 1 and 5).

Sector bias linked to ESG risks/opportunities have been implemented within our RI rating methodology, thus going beyond the traditional best-in-class approach. In RI equity funds, sector allocation is also influenced by ESG considerations.

Screened by

Description

We have identified a list of stocks that violate in a severe and frequent manner Global Compact principles. These companies are systematically excluded from RI Funds.

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

The GREaT framework is based on 4 pillars :

  • Responsible Governance
  • Sustainable management of Resources
  • Economy and Energy transition
  • Local development

To obtain an ESG rating of companies, we implement this philosophy through a quantitative and a qualitative approach, for which we selected a certain number of criteria. We have selected the ESG ratings providers that cover our ESG criteria in the most relevant way (Vigeo and MSCI ESG Research).

We then adjust weights per pillars according to sectors. This is done in a qualitative manner by the RI Team in a periodic basis. For example, environmental issues for a driller and a media group cannot be equally considered.

All companies are rated between 1 and 10 (1 for the best, 10 for the worst) using Z-scores in order to reduce bias within our universe. Companies are eligible when they have a rating below or equal to 5. Overall, it means that 50% of the rated issuers are eligible within our RI funds.

This matrix has a sector bias:

  • it excludes approximately 50% of companies in "neutral" sectors
  • it excludes approximately 60% of companies in "SRI high-risk" sectors (for instance Energy)
  • it excludes approximately 40% of companies in "SRI high-opportunity" sectors (for instance Healthcare)

Every 3 months, RI analysts can modify/adjust ESG ratings calculated by the AGIR tool, under a formalized process. Changes have to be explained and agreed collectively by the Review committee. After the meeting, the system generates an email that is sent to all portfolio managers and results are integrated in all investment tools (SRI or mainstream). This tool also feeds into front office systems thus expanding the use of ESG ratings across all investment platforms. Quarterly meetings are also organised between the RI team and the other investment platforms to explain the main changes in ratings across the universe.

Changes impacting clients portfolio are documented either in monthly reporting or during investment committees.

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. 

          RI labelling process is performed by an Independent auditor

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]

ESG rating methodology relies on several external sources, in order to strengthen the quality of the analysis.

External sources are generally chosen by the RI team after having benchmarked different providers. Depth, granularity and responsiveness are important criteria to select external ESG providers.

ESG ratings are reviewed on a quarterly basis - through AGIR our quantitative rating tool - to ensure that ESG data is updated and accurate.

The internal audit department controls on an annual basis the engagements, investment procedures and rating process of the RI Team.

LEI 06. Processes to ensure fund criteria are not breached (Private)

(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]

Environmentally themed: LBPAM Responsable Actions Environnement is a thematic fund focused on environmental issues launched in 2009 and managed by the RI Equity Strategy.

The initial universe is composed of companies providing solutions to environmental challenges (climate change, resource depletion , etc.), by managing environmental resources, developing clean technologies or improving environmental protection - for at least 20% of their revenues. These companies belong to one of the following clusters:

  • Green building
  • Circular economy
  • Renewable energy
  • Eco-solutions and services
  • Sustainable transport and mobility.

All the research used to identify companies and discard ESG risks is done within the RI Team on a qualitative basis. The Fund Manager engages with companies and meet with management to monitor the development of their business. In addition, we also monitor the companies that could integrate the investment universe either because their transition to a low carbon economy is increasing or because their ESG practices have improved. All the companies composing the portfolio are screened according to our GREAT approach in order to measure the level of exposure to ESG risks and their ability to manage these risks.

Socially themed: LBPAM manages 6 portfolios with direct social impact. These funds invest between 5% and 10% of their assets in social companies, which currently are SIFA (Société d'Investissement France Active), Habitat & Humanisme (H&H) and a social impact fund managed by an external asset manager. 3 portfolios have received the Finansol Label (French label for "finance solidaire").

Combined themed: in 2018, we have decided to enhance the environmental and social themes in our equity pooled funds. By the end of 2018, all these funds had more than 50% of their assets invested in companies offering E&S solutions. The rest of the portfolio are invested in companies having a good ESG quality score (between 1 and 5).

(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors (Not Applicable)

LEI 09. Processes to ensure integration is based on robust analysis (Not Applicable)

LEI 10. Aspects of analysis ESG information is integrated into (Not Applicable)

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