We believe that ESG factors act as a crucial early-warning system. The numerous ESG indicators presented in annual and sustainability reports offer a complementary way to assess the health of a company and its corporate culture. ESG factors often act as a good proxy to evaluate the quality of the company's management and the effectiveness of risk management systems. They are now directly comparable, within a sector and over time. Changes in certain indicators offer additional information which often has yet to filter through to the financial statements. In this context, we view ESG indicators as an outstanding source of information to help us foresee the risks and opportunities companies face and/or will face, in particular in their interactions with their stakeholders: employees, suppliers, customers, local communities, governments, shareholders, etc., regardless of the sector in which they operate.
We have divided our ESG analysis into 2 dimensions: Corporate Social Responsibility and Sustainable Transition, which reflects our risk/opportunity approach to Responsible Investment.
Our methodology: assessing Corporate Social Responsibility through 4 pillars
1- RESPONSIBILITY TO SHAREHOLDERS
Protection of the interests of minority shareholders
Independence of the Board and its committees
Quality of the financial communication
2- ENVIRONMENTAL RESPONSIBILITY
Regulation and certification
Climate policy and energy management
Impacts on biodiversity and externalities
3- SOCIAL RESPONSIBILITY
Corporate culture and HR management approach
Labour relations and working conditions
Health and safety
Attractiveness and recruitment
Training and career management
Promotion of diversity
4- SOCIETAL RESPONSIBILITY
Product quality, safety and traceability
Supply chain management
Respect for local communities and human rights
Innovation capacity and pricing power
Customer satisfaction and market positioning
Corruption and business ethics
Coherence of the tax strategy
We believe it is crucial to take a long-term view when financing the economy. As responsible fund managers, our role is to select the companies that are best placed, both strategically and economically, to meet the challenges of today and tomorrow. We are convinced that companies' ability to foresee market changes is crucial to establishing or maintaining their leadership on the long run.
It is our view that the sustainable economic transition generates a tremendous number of investment opportunities. Our work focuses on identifying these relevant investment themes and selecting the companies that are best position to benefit from these opportunities. Societal trends evolve constantly, and we therefore review our list of sustainable investment themes every year. By taking a pragmatic and innovative approach to the sustainable transition, we aim to maintain a comprehensive understanding of growth and performance drivers on the long run.
Assessing the contribution to the Transition to a Sustainable Economy: 5 sustainable transition themes, 38 activities
We assess the exposure of each company to the relevant sustainable transition themes. This exposure is calculated as the percentage of revenues derived from these sustainable activities.
1- DEMOGRAPHIC TRANSITION
Inclusion of senior people
Inclusion of emerging populations, Bottom of the Pyramid strategies
Access to education
Access to housing and comfort
Public transport, traffic management
2- HEALTHCARE TRANSITION
Enhanced nutrition, sport
Fight against endemic diseases
Access to healthcare, Bottom of the Pyramid strategies
Cutting-edge medical care and research
3- ECONOMIC TRANSITION
Certification, quality and traceability of products
Access to connectivity
Transparency and security of flows and exchanges
Access to financial services, Bottom of the Pyramid strategies
4- LIFESTYLE TRANSITION
Product lifecycle extension
Smart production and factories
5- ECOLOGICAL TRANSITION
Continuous monitoring of controversies
We aim to compare the principles laid down by companies with what happens in practice, thereby creating a database of alerts for fund managers. We analyse each controversy in detail and produce a dedicated report. This alert system is used as an advanced warning mechanism and does not automatically result in sanctions. Given the international dimension of businesses and the large amount of information available, our assessment process distinguishes isolated cases from major alerts on a case-by-case basis.
Regular interactions and dialogue with companies
In line with our conviction-based investment approach, we pick stocks based on an in-depth analysis of a company’s fundamentals. Discussions with top managers lie at the heart of what we do. Similarly, when conducting ESG analysis, we seek whenever possible to meet with companies to discuss topics relating to responsibility and the transition to a sustainable economy. As active investors, we also pay great attention to exercising our voting rights in general meetings.
Dedicated SRI range of funds: DNCA INVEST BEYOND
Our SRI funds are grouped together in the “DNCA Invest Beyond” range (note that our French-registered SRI fund is registered under "DNCA Beyond European Equity", but belongs to our SRI range). For our SRI funds, our ESG analysis is used both to define the investment universe (by excluding worst performers) and to select sustainable and responsible companies. The same two-stage investment process is used for all “Beyond” funds:
- Exclusion of the stocks that face high corporate responsibility risks. This filter complies with the French government-backed SRI label.
- Selection of stocks that are well exposed to the transition to a sustainable economy.
Ensuring meaningful and transparent reporting
We believe that transparency is one of the cornerstones of responsible investment. Therefore, we aim to offer as much transparency as possible on the way we look at Corporate Responsibility and the Transition to a Sustainable Economy. We are committed to share our expertise in this domain, in order to help set the best standards and foster the development of RI.
As a consequence, reporting relevant ESG indicators and seeking to measure our impacts is a priority, especially for SRI portfolios. We are conscious of the numerous challenges relating to the definition of criteria and their relevance, access and reliability of data. We believe it is nevertheless fundamental to actively contribute to building robust reporting tools.