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DNCA Finance

PRI reporting framework 2019

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(C) Implementation: Integration

FI 10. Integration overview

10.1. Describe your approach to integrating ESG into traditional financial analysis.

Our proprietary ABA model (internal platform to analyse and rate companies on ESG factors) results in a matrix that combines Corporate Responsibility Risks (Severe risk, high risk, moderate risk, low risk and managed risk) and Sustainable Transition Exposure (No, low, trend, major and pure player). This combination results in 4 levels of recommendation and each level has an impact on the risk premium :

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

10.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

Corporate (financial)

We look at issuers, not financial instruments. As such, our ESG analysis is the same when looking at equity and fixed income. On the corporate fixed income side, we analyse in the same way financials and non-financials in principle, but we tend to give more weight to governance issues for financial issuers. We analyse non-financial issuers depending on the sector and company's specifics, which can impact the weighting we give to each responsibility pillar.

Corporate (non-financial)

We look at issuers, not financial instruments. As such, our ESG analysis is the same when looking at equity and fixed income. On the corporate fixed income side, we analyse in the same way financials and non-financials in principle, but we tend to give more weight to governance issues for financial issuers. We analyse non-financial issuers depending on the sector and company's specifics, which can impact the weighting we give to each responsibility pillar.

10.3. Additional information [OPTIONAL]


FI 11. Integration - ESG information in investment processes

11.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
Corporate (financial)
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is used to adjust the internal credit assessments of issuers.
ESG analysis is used to adjust forecasted financials and future cash flow estimates.
ESG analysis impacts the ranking of an issuer relative to a chosen peer group.
An issuer's ESG bond spreads and its relative value versus its sector peers are analysed to find out if all risks are priced in.
The impact of ESG analysis on bonds of an issuer with different durations/maturities are analysed.
Sensitivity analysis and scenario analysis are applied to valuation models to compare the difference between base-case and ESG-integrated security valuation.
ESG analysis is integrated into portfolio weighting decisions.
Companies, sectors, countries and currency and monitored for changes in ESG exposure and for breaches of risk limits.
The ESG profile of portfolios is examined for securities with high ESG risks and assessed relative to the ESG profile of a benchmark.
Other, specify

11.2. Additional information [OPTIONAL]

We have explained in detail in the previous section how the ESG analysis is integrated in the fundamental analysis, and thus valuation, of the company, across our equity and corporate fixed income investments.

For SRI funds, the impact of the ESG assessment is also directly on the portfolio construction by defining the eligible universe:

1- Screen out of companies facing high ESG risks (below our 4 /10 rating threshold): for European equity strategies the exclusion rate is about 30%, for global equity strategies the exclusion rate is about 50%, for European corporate bond strategies the exclusion rate is about 60%. The result of this first screen is our "Responsible" Universe.

2- Screen in of companies that have a positive impact on sustainable transition: this represents about 50% of the "Responsible universe". The result of this second screen is our "Sustainable & Responsible" Universe.

All SRI Funds must invest only in companies that are in the "Responsible" universe and seek to maximize the share of companies in the "Sustainable & Responsible" universe.


FI 12. Integration - E,S and G issues reviewed

12.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

12.2. Please provide more detail on how you review E, S and/or G factors in your integration process.

Corporate (financial)

Corporate responsibility is evaluated and then rated  out of 10 (Responsibility rating). The analysis is composed of 4 themes: shareholders responsibility, environmental responsibility, labour responsibility and social responsibility. We have retained the four traditional dimensions of corporate social responsibility, selecting for each only the most material analysis criteria.  

Each theme is built according to the most relevant material issues for companies (sector and company's specifics). The number of analysis criteria is deliberately limited to 24, in order to retain only the most material issues. For financial issuers, governance issues are deemed the most material and will thus typically account for about 40% of the overall "Responsibility" rating.

Here are the detailed ESG criteria used:  

- shareholders (G): Respect for minority shareholders, Independence of Board and committees, Accounting risks, Quality of management, CEO compensation and Quality of financial reporting

- environment (E): Environmental management, Regulation and certification, Climate & energy policy and Impact on biodiversity and externalities

- labour (S): Corporate culture and HR management, Labour relations and working conditions, Health and safety, Attractiveness and recruitment, Training and career management and Promotion of diversity

- social (S): Product quality, safety and traceability, Supply chain management, Respect for local communities and human rights, Ability to innovate, Customer satisfaction, Protection of personal data, Corruption and business ethics and Tax policy and practices

Corporate (non-financial)

Corporate responsibility is evaluated and then rated  out of 10 (Responsibility rating). The analysis is composed of 4 themes: shareholders responsibility, environmental responsibility, labour responsibility and social responsibility. We have retained the four traditional dimensions of corporate social responsibility, selecting for each only the most material analysis criteria.  

Each theme is built according to the most relevant material issues for companies (sector and company's specifics). The number of analysis criteria is deliberately limited to 24, in order to retain only the most material issues.

Here are the detailed ESG criteria used:  

- shareholders (G): Respect for minority shareholders, Independence of Board and committees, Accounting risks, Quality of management, CEO compensation and Quality of financial reporting

- environment (E): Environmental management, Regulation and certification, Climate & energy policy and Impact on biodiversity and externalities

- labour (S): Corporate culture and HR management, Labour relations and working conditions, Health and safety, Attractiveness and recruitment, Training and career management and Promotion of diversity

- social (S): Product quality, safety and traceability, Supply chain management, Respect for local communities and human rights, Ability to innovate, Customer satisfaction, Protection of personal data, Corruption and business ethics and Tax policy and practices

12.3. Additional information.[OPTIONAL]


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