Public HTML RI reports - PRI reporting framework 2019

	SSA	Corporate (financial)	Corporate (non-financial)	Securitised
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

We have different screening strategies regarding SSA and Corporates.

SSA

For all our investments we exclude countries that are sanctioned by United Nations, the European Union and the French Government (ie. Irak, Iran, Lebanon, Libya..). We also exclude from our investments countries included in the FATF Recommendations and countries identified as tax heavens.
Within our RI funds we apply different weights to countries according to their ESG ratings. Countries with positive ESG ratings are over-weighted, whereas countries with a negative ESG rating are underweighted compared to their benchmark.
Some mandates exclude countries that are not able to ensure human rights, freedom of expression or are associated to corruption.

Corporates

Sector exclusion: Companies belonging to sectors ICB Level 3 "Tobacco" and ICB sector level 4 "Gaming" are systematically excluded of RI Fixed income funds.
Product negative exclusion: For all funds (SRI or not) we have a formal policy that excludes investments in companies involved in Controversial weapons encompassing the production, trading or storage of cluster munitions and antipersonnel land mines.
Norms based screening: We exclude from all our RI strategies, companies that have seriously and frequently violated the Global Compact principles.

04.3. Additional information. [Optional]

Corporates

Positive screening: Within our RI funds we only invest in issuers with a low ESG risk profile (issuers having a score between 1 and 5)

FI 05. Examples of ESG factors in screening process

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

Example 1

Type of fixed income

SSA

Corporate (financial)

Corporate (non-financial)

Securitised

ESG factors

Environmental

Social

Governance

Screening

Negative/ exclusionary

Positive/ best-in-class

Norms-based

Description of how ESG factors are used as the screening criteria

Danske Bank:

In December 2018, the Credit and RI Team have met to discuss Danske Bank allegations on money laundering in its Estonian Branch. Money Laundering is one of the ESG criteria integrated under the Sustainable governance pillar (Business ethics). This pillar is composed of four main criteria: business ethics, executive remuneration, fiscal responsibility and the board of directors. During this meeting we have reviewed all the potential impacts that this allegation can create on Danske's control systems, governance, ethical culture, employees and clients. In addition, we have reviewed how these issues are integrated by the credit reseach and fixed income markets..

We have studied as well the corrective measures. We have concluded that in spite of measures taken since September, we are not satisfied with the level of transparency. We have decided to downgraded its RI score to reflect these weaknesses. In addition the credit team put this name on a watch list given the negative outcomes of the investigations.

Example 2

Type of fixed income

SSA

Corporate (financial)

Corporate (non-financial)

Securitised

ESG factors

Environmental

Social

Governance

Screening

Negative/ exclusionary

Positive/ best-in-class

Norms-based

Description of how ESG factors are used as the screening criteria

Prosegur is an Spanish issuer classified in the commercial services and supplies sector. The company has a score of 8 (in a scale from 1 to 10), thus it is a laggard in its industry. We have discussed this case with the credit team in order to determine what where the main negative contributors to its score.

For a company operating in the private security domain mainly in emerging markets, its main issues at stake are: human rights, freedom of association, health and safety, governance and corruption. The company has been highlighted for violating human rights in its Latin American branches without corrective measures.

Credit analysts have exposed that this business could disappear with the digital developments. From a financial standpoint, the issuer is not transparent. We have discussed if all these risks are remunerated by its interest rate and we have agreed that there is a small prime given its exposure to emerging markets but not additional compensation for all the risks taken. The company is excluded in the end of our fixed income portfolios.

Example 3

Type of fixed income

SSA

Corporate (financial)

Corporate (non-financial)

Securitised

ESG factors

Environmental

Social

Governance

Screening

Negative/ exclusionary

Positive/ best-in-class

Norms-based

Description of how ESG factors are used as the screening criteria

LBPAM has an opened fund called Liberté Solidarité in partnership with the NGO Fédération International des Droits de l'Homme. This funds is invested in bith equity and fixed income. For the sovereign investments, LBPAM relies on FIDH assessment of the 28 European Union (EU) Member States. The report was updated in February 2018. The current study evaluates and compares all 28 Member States’ “performance” in the field of human rights and on the basis of the comprehensive and binding body of human rights law. In defining the content of each right, international and regional jurisprudence – stemming either from judicial decisions or interpretations by international monitoring bodies provides essential guidance on what governments must do to discharge their human rights obligations. Such obligations include extraterritorial obligations, which are increasingly recognized as fundamental to human rights protection in a globalized context.

Example 4

Example 5

05.2. Additional information.

FI 06. Screening - ensuring criteria are met

06.1. 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?	Analysis is performed to ensure that issuers meet screening criteria We ensure that data used for the screening criteria is updated at least once a year. Automated IT systems prevent our portfolio managers from investing in excluded issuers or bonds that do not meet screening criteria Audits of fund holdings are undertaken yearly by internal audit or compliance functions Other, specify None of the above
Positive/best-in-class screening	Analysis is performed to ensure that issuers meet screening criteria We ensure that data used for the screening criteria is updated at least once a year. Automated IT systems prevent our portfolio managers from investing in excluded issuers or bonds that do not meet screening criteria Audits of fund holdings are undertaken yearly by internal audit or compliance functions Other, specify None of the above
Norms-based screening	Analysis is performed to ensure that issuers meet screening criteria We ensure that data used for the screening criteria is updated at least once a year. Automated IT systems prevent our portfolio managers from investing in excluded issuers or bonds that do not meet screening criteria Audits of fund holdings are undertaken yearly by internal audit or compliance functions Other, specify None of the above

06.2. Additional information. [Optional]

LBPAM has a clear process to ensure that ESG fund criteria are respected:

Integration of the SRI investment universe in IT asset management tools. These tools create alert when portfolio managers want to invest in a forbidden issuer.
At the Risk Department level, an independent ex-post audit is conducted on a daily basis regarding the implementation and compliance of the ESG rules of the fund (allocations by ESG score, authorized issuers...) .
External auditors frequently ask investment universes and portfolio holdings in order to check out that the ESG fund approach and procedures are respected.

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