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DNCA Finance

PRI reporting framework 2019

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

(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
Corporate (financial)
Corporate (non-financial)
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 assess companies and not the financial instrument in itself. As such, our methodology for fixed income is the same as equity.

Our ESG analysis is based on a combined analysis of the ESG risks the company faces (the "Responsibility" rating) and the sustainable investment opportunities it is positioned to tap into (the exposure to the sustainable economic transition).

Our "Responsibility" rating is built on the assessment of 4 pillars: governance, environment, labour and society. It results in a rating out of 10 and a recommendation on the level of responsibility risk. Our "Sustainable Transition" assessment is based on the company's exposure to the sustainable transition themes that we have identified in the 4 transitions we follow (demographic, medical, economic, lifestyle, ecological).

We also exclude from our SRI funds companies facing high level of controversies, that we consider as being in breach with international norms (UNGC, OECD, ILO, UNGP).

Then, we do have a strict exclusion of controversial weapons for every funds; and we apply sector/activity exclusions for SRI strategies (tobacco, coal, unconventional oil and gas, defence).

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process

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

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Due to a poor human resources management and lack of transparency on social issues we decided to divest from a French media company. Several controversies on labour issues and fatal accidents resulted in a poor ESG rating, highlighting the high level of ESG risks.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

In coordination with the Fixed Income team, we reinforced our investment in a pure recycling play in France, as both the financials and the ESG/Sustainable transition assessments were good (pure player in the Ecological transition).

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

In the banking sector, there are very few examples of companies that are positively exposed to the sustainable transition. We selected an Italian bank that in addition to having a good management of ESG risks, derived an estimated 5.2% of revenues from SME lending. This is a good example of exposure to Access to Financial Services, which is one of our Sustainable Transition themes.

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?
Positive/best-in-class screening
Norms-based screening

06.2. 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.

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

 


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