This report shows public data only. Is this your organisation? If so, login here to view your full report.

DNCA Finance

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
78 %
Percentage of active listed equity to which the strategy is applied
2 %
Percentage of active listed equity to which no strategy is applied
20 %
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.

At DNCA, we make a difference between :

- SRI strategies (2% AUM) that combined, thematic, screening ansd incorporation

- ESG incorporation that applies to all the funds which invest in equities and corporate bonds.

- All the rest where we do not incorporate any ESG analysis because it make little sense in our view (govies essentially)

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


A dedicated range of SRI funds (the Beyond range) selects companies in portfolios according to corporate responsibility and sustainable transition analysis. All the SRI funds have a common investment process based on two filters: Responsibility (exclusion of companies facing high ESG risk) and Sustainable Transition (positive selection of companies that are best positioned on the sustainable transition). 

In addition, we offer to all PM a tool to integrate the ESG rating into the company's valuation.
 


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 

          Companies' meeting with top managements and site visits
        

Indicate who provides this information 

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

02.3. Describe how you incentivise brokers.

A share of the budget allocated by the company to brokers is determined by the RI team. We assess brokers' quality of research based on their ESG expertise along financial analysis. The feedback we provide to brokers usually include a section on the quality of their ESG research.

02.4. Additional information.[Optional]

At DNCA we do no use any external data from providers, except for purely reporting purposes (carbon footprint)


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]

Engagement activities are all recorded on our ABA proprietary ESG platform and made available to all PMs. Detailed meeting notes after each engagement meetings are also sent to PMs who own the stock.

Voting activities are undertaken in a very collegial way. Voting decisions for each AGM are made in coordination between the lead PM for the company and the RI team, in accordance with DNCA's voting policy. Preparatory meetings for Shareholders' Meetings can be organised with issuers. These meetings give the DNCA investment teams the opportunity to discuss with companies their draft resolutions to evaluate their relevance, while putting forward DNCA’s point of view. 


(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 have retained the four traditional dimensions of corporate social responsibility, selecting for each only the most material ESG criteria:

- shareholder responsibility (governance)

- environmental responsibility (environment)

- labour responsibility (human resources)

- social responsibility (society)

Corporate responsibility analysis is conducted relatively to each specific sector and taking into account the company's specifics (activities, geographical exposure) if any. Each dimension has a different weighting depending on the sector and the company's specifics. We use a total of 24 criteria within the 4 dimensions above (some can be deactivated in some sectors if they are not relevant). The final Responsibility rating ranges from 0 to 10 and results in a recommendation on the level of responsibility risk. Distribution of the universe takes into account outlying ratings. Below the threshold 4 out of 10, a company is screened out from the SRI eligible universe.
 

We also have a strict exclusion of controversial weapons for every funds; and we apply sector/activity exlusions for SRI strategies (tobacco, coal, unconventional oil and gas, defense). 

Screened by

Description

We analyse the contribution to the sustainable transition for each company. This analysis identifies a company’s exposure (% of revenues) on one or more sustainable transition themes. A total of 38 themes and business areas have been identified as contributing to the sustainable transition. This number can vary every year, depending on the materiality of each transition theme and the mergence of new ones.

Our framework of sustainable transition themes is set up around 5 transitions: demographic, medical, economic, lifestyle and ecologic. Each company is assessed according to its absolute level of revenues in each transition theme. Exposure ranges from 0 to 100% and results in a recommendation on the extent of the company’s exposure and contribution to the sustainable transition going from a "no exposure" position to a "pure player" profile. 

Screened by

Description

The analysis of corporate responsibility and the contribution to a sustainable transition are supplemented by a continuous monitoring of controversies and ongoing dialogue with companies. The assessment and monitoring of controversies has an impact on the corporate responsibility rating (companies facing severe controversies suffer a discount on their rating that can go up to 50%). A dedicated Controversy tool on our ABA ESG platform allows us to record and monitor controversies for all companies under our coverage. Above a certain rating on the severity of the controversy/ies, a company is considered in breach of international norms.
 

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

Our internal ABA ESG tool is reviewed annually (Responsibility criteria, KPIs, sustainable transition themes). We will communicate publicly (on our website, in our RI policies and in client presentations) about any change made to the model.


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.

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

05.5. Additional information. [Optional]

As we do not use external providers in our ESG analysis, the criteria relative to external providers or third-parties in question LE05.1 are not relevant (therefore unticked).

The RI team works in coordination with the risk management team, the compliance team, the investment teams (who all have access to our internal ABA ESG platform) to ensure that the ESG screens are robust and well implemented. We are also very transparent with our clients and provide regularly upon request samples of our ESG analysis to them. The monthly ESG committee, which includes the risk management team, the compliance team, the investment teams, commercial teams, also discuss and review how our ESG screens are applied to the relevant funds.

Last but not least, all our SRI funds (Beyond range) are certified according to the French SRI Label, which mostly evaluates the robustness of SRI processes.


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.

Pre-trade controls have been put in place by the internal control and risk team on controversial weapons (across all funds) and on ESG criteria for our SRI funds. Stocks that do not meet the relevant criteria/threshold cannot be traded. This is the first line of defence to avoid any breach.

The internal control and risk team has also established post-trade alerts. If breaches are identified, the department of internal control and risk send a formal alert to the portfolio manager, the head of the Responsible Investment team and the CIO. Breaches have to be explained and regularised within a week. 

An assessment of all the breaches identified is made regularly to correct processes, if needed.

06.3. Additional information.[Optional]

 Pre-trade controls have been put in place by the internal control and risk team on controversial weapons (across all funds) and on ESG criteria for our SRI funds. Stocks that do not meet the relevant criteria/threshold cannot be traded. This is the first line of defence to avoid any breach.

The internal control and risk team has also established post-trade alerts. If breaches are identified, the department of internal control and risk send a formal alert to the portfolio manager, the head of the Responsible Investment team and the CIO. Breaches have to be explained and regularised within a week. 

As part of the French SRI Label, an external auditor reviews annually that the SRI processes are in place and working. 


(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]

As described previously, DNCA is managing a range of SRI funds and each fund strategy has a dedicated range of thematics it focuses on:

- DNCA INVEST BEYOND GLOBAL LEADERS invests in four key challenges for which it is imperative to identify sustainable leaders: technology (drawing on cutting-edge technology to provide answers to climate change, resource scarcity, efficiencies across industries), digitalization (supporting the development of digital infrastructure, connectivity, digital services and optimized logistics to meet economic and social challenges), demographics (anticipating demographic changes and their impacts on changing consumption patterns, particularly in emerging countries) and healthcare (understanding key healthcare challenges to be able to select the best investment opportunities: the ageing population, medical robotics, development of diagnostics, innovation etc).

- DNCA BEYOND EUROPEAN LEADERS focuses on responsible governance in order to target high-quality companies that demonstrate high level of transparency and integrity. The transparency and reliability offered by such companies often goes hand-in-hand with resilience (ability to withstand an adverse and challenging environment), recurrence (ability to guarantee sustainable shareholder returns) and long-term performance.

- DNCA INVEST BEYOND INFRASTRUCTURE & TRANSITION focuses predominantly on environmental challenges and building infrastructure aligned with the sustainable transition. The ecological transition is the main driver of investment for this strategy: production of renewable energy, development of sustainable mobility, highly carbon-intense sector to be renewed (e.g. building which accounts for 40% of energy demand; 20% of greenhouse gas emissions) and innovative sectors to improve connectivity and security.

- DNCA INVEST BEYOND ALTEROSA is a multi-thematic funds.

- DNCA INVEST BEYOND SEMPEROSA is a multi-thematic funds focusing on positive social and environmental impacts. In addition to the ESG screen (Responsibility and Sustainable Transition) used for all SRI funds, Semperosa has an impact screen (based on our proprietary "AIM" filter) which enables us to select companies that are the best positioned to generate significant positive impacts on the long-run.

- DNCA INVEST BEYOND EUROPEAN BOND OPPORTUNITIES is a multi-thematic funds.  

 


(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]

As explained previously, our proprietary ESG model looks at 4 pillars of corporate responsibility: governance, environment, labour and society.

In each of these pillars, we have identified a set of criteria that we systematically assess for each company (with an overall importance in the final ESG rating that varies depending on the sector and the company's specifics that affect its risk exposure). Here is the list of the criteria we assess for each of the 4 Responsibility pillars:

Governance

  • Quality of the Board and committees
  • Quality of the management
  • Remuneration policy
  • Respect of shareholders' rights
  • Accounting risks
  • Quality of financial communication

Environment

  • Management of environmental issues
  • regulation and certification
  • Climate and energy policy
  • Impact on biodiversity and externalities

Labour

  • Corporate culture and management of human resources
  • labour relations and working conditions
  • Attractiveness and recruiting
  • Training and career development
  • Health & safety
  • Promotion of diversity

Society & external stakeholders

  • Quality, safety and traceability of products
  • Innovation capacity & pricing power
  • Customer satisfaction & competitiveness
  • Management of the supply chain
  • Tax strategy
  • Respect of local communities and human rights
  • Data management & privacy

All these criteria are systematically assessed, but some can be deactivated in certain sectors if they are not relevant.

 


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.

09.4. 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]

We conduct all our ESG analysis internally based on our proprietary ESG assessment model. Our analysis is supplemented by regular meetings with top management, sustainability managers, IR and site vists. We are confident that this is the best set-up to ensure that we have robust analysis across our investment universe and that we take into account company's business models and specifics. We backtest on an annual basis all of our ESG data, to evaluate which ones are the most materials and to make our ESG model evolve accordingly.


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

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.

The weight in portfolios depends on the fundamental quality, valuation (update) and liquidity. The ESG analysis has a direct impact on the fundamental quality of the company and is translated into valuation through our adjusted risk premium mechanism. In that sense, ESG analysis impact the financial evaluation of every stock and is thus totally incorporated in portfolio construction. 

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

The ABA model (internal ESG analysis tool) results in a matrix that combines Corporate Responsibility Risks (High risk, medium risk, moderate risk, low risk and managed risk) and Sustainable Transition Exposure (none, low, trend, major and pure player). This combination results in 4 levels of recommendation and each level has a impact on the risk premium rate :

1- Conviction: -20% on the risk premium rate

2- Strong opportunity: -10% on the risk premium rate

3- Opportunity: -5% on the risk premium rate

4- Weakness: +10% on the risk premium rate

10.6. Additional information. [OPTIONAL]


Top