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DNCA Finance

PRI reporting framework 2019

You are in Strategy and Governance » Investment policy

Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

Other description (1) ESG reporting

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

SRI naturally focuses on long-term performance, factoring in all the risks and opportunities to which businesses are exposed. We strongly believe that sustainable development must be one of the main criteria used to identify the winners of today and tomorrow. ESG factors lie alongside financial analysis at the heart of our Responsible Investment approach and provide valuable insights to our investment decisions.

We aim to offer an innovative and differentiating approach that can adapt to integrate new factors as they emerge. Consequently, our Responsible Investor policy distinguishes two concepts: Corporate Social Responsibility (CSR) and the Transition to a Sustainable Economy. This is the result of an in-depth analysis of economic and social trends combined with recognized SRI expertise.

We are fully committed to developing proprietary models built on our own expertise, and to ensuring that we add tangible value when we pick stocks. DNCA’s proprietary ESG analysis model is true to this principle, and has been developed to offer ratings constructed entirely internally and under our control. These ratings are for the most part based on information collected from companies. Discussions with directors and site visits deepen our understanding of companies and constitute a great source of added value.

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

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
Accounting risks
Management quality
CEO remuneration
Quality of the financial communication

2- ENVIRONMENTAL RESPONSIBILITY

Environmental management
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
Data privacy
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
Security
Public transport, traffic management
At-home services

2- HEALTHCARE TRANSITION

Enhanced nutrition, sport
Medical diagnostics
Fight against endemic diseases
At-home care
Medical robotics
Access to healthcare, Bottom of the Pyramid strategies
Cutting-edge medical care and research

3- ECONOMIC TRANSITION

Sustainable infrastructure
Digital transformation
Certification, quality and traceability of products
Smart logistics
Sustainable tourism
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
Eco-design
Smart production and factories
Circular economy
Collaborative consumption
Digitization
Artificial intelligence
Smart mobility

5- ECOLOGICAL TRANSITION

Energy storage
Clean energies
Energy efficiency
Water treatment
Waste recovery
Biodiversity protection
Sustainable agriculture
Ecological mobility


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.

 

01.6. Additional information [Optional].

          
        
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SG 01 CC. Climate risk

01.6 CC. Indicate the climate-related risks and opportunities that have been identified and factored into the investment strategies and products, within the organisation's investment time horizon.

As conviction-based investor with a relatively long investment time horizon, climate-related risks form an integral part of our fundamental analysis of companies. We have been so far mostly focusing on climate transition risks, as we don't believe there are currently relevant tools to have an investment-oriented forward-looking assessment of climate physical risks, but we participate in the industry discussions on the best way to develop relevant tools.

We have defined a climate approach that is sector specific and based on the materiality of climate risks. We integrate climate transition risks (regulation-driven, technology-driven, market-driven) in our fundamental analysis of companies, when it can have a material impact of the company's business positioning, value of assets or ability to sustain its growth. As such, it is systematically integrated by fund managers and analysts in sectors like Utilities, Automotive, Oil and Gas.

In addition, a set of relevant climate risks and indicators has been defined for sectors facing high carbon risks, and is integrated in the ESG assessment of companies. In some sectors, it can represent up to 40% of the overall ESG rating. We also evaluate for each company, the share of its revenues that is generated from activities linked to the ecological transition. In sectors that are facing high climate transition risks, the combination of the risk rating ("Responsibility") and opportunity exposure ("Sustainable Transition", here focusing on the ecological transition) help us determine which companies are the most resilient and the best position to benefit from the sustainable transition.

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

01.9 CC. Indicate whether the organisation publicly supports the TCFD?

01.10 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

Climate forms an integral part of our ESG assessment framework. We have defined a climate approach that is sector specific and based on the materiality of climate risks.

In sectors that have been identified as facing high climate risks (being regulatory, technological or market-related risks), we have developed a set of climate indicators that are used to evaluate in a forward looking manner companies' exposure to climate risks and how they manage these risks. This analysis can represent up to 40% of the overall ESG rating ("Responsibility" rating), for the sectors the most at risk. 

In addition, we evaluate for each company, the share of its revenues that is generated from the ecological transition. 

In sectors that are facing high climate transition risks, the combination of the risk rating ("Responsibility") and opportunity exposure ("Sustainable Transition", here focusing on the ecological transition) help us determine which companies are the most resilient and the best position to benefit from the sustainable transition.

1.12 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.

specify

          We publish an annual climate report, in line with the French article 173.
        

SG 02. Publicly available RI policy or guidance documents

New selection options have been added to this indicator. Please review your prefilled responses carefully.

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

URL/Attachment

URL/Attachment

URL/Attachment

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02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

Other description (1) ESG reporting - we provide a set of ESG indicators in the monthly factsheet on each SRI funds

02.3. Additional information [Optional].

Our Responsible Investment Philosophy integrates most of the topics above. It is publicly available on our website (since March 2019, in English as well).

Regarding ESG reporting, fund's factsheet can be found directly on the website for each SRI funds. We provided here the example of DNCA INVEST BEYOND Global Leaders, our SRI Global Equity fund.


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

Policy of management of the conflicts of interests

This document has been prepared in accordance with the French and Luxemburgish applicable regulation in France and in Luxembourg and aims to inform clients, unit bearer or shareholders of UCITS managed by DNCA Finance (management company in France) and DNCA Finance Luxembourg (management company in Luxembourg), both hereafter the "PMC" (the Portfolio Management Company), on arrangements in place to prevent and identify conflicts of interest that could arise in their activities, that is:

- Management under mandate (exclusively DNCA finance) ;
- UCITS management ;
- Financial investment advice ;

List of situations of conflicts of interest that may be found

This document has been prepared in accordance with the French and Luxemburgish applicable regulation in France and in Luxembourg and aims to inform clients, unit bearer or shareholders of UCITS managed by the PMC, on arrangements in place to prevent and identify conflicts of interest that could arise in their activities.

03.3. Additional information. [Optional]

Conflict of interest prevention and detection system

The PMC has listed all potential cases of conflict of interest that may be found, taking into account its size, its organisation, its type, its importance and the complexity of its activity.

Possible conflicts of interest concerning directly the portfolio management activity:

The late affectation of a response to an order to a client or group of clients enabling some of these to be favoured or disfavoured.

If group entities are selected, they must be chosen using the best selection procedure of the management company and in the interest of the holders/principals. The fees applied must be in line with market rates.

Systematic unjustified benefits granted to certain principals or UCITS vehicles in relation to the adoption of responses to orders placed on markets.
A stock market error resulting in the allocation of a surplus from financial instruments bought from or sold to clients instead of the error account of the company.
In the event of an issue, private placement, stock market flotation and so on resulting in a situation of scarcity, unequal treatment of principals and UCITS vehicles that is unjustified by an internal procedure conforming with professional good practice. Risk of seeing certain clients that are economically important for the management company or to which this is related benefit from undue advantages in relation to other clients.
In the event of an issue, private placement, stock market flotation and so on resulting in a situation of scarcity, the priority allocation of financial instruments concerned to staff or managers of the management company at the expense of clients.
Sale-purchase position switching between UCITS and UCITS and mandates: authorised but must be managed (transactions in same conditions as the market and in the sole interest of holders and/or principals).

Possible conflicts of interest regarding proprietary transactions

Proprietary transactions of the management company competing with those performed for clients, prejudicing these due to price changes caused by these transactions, to not respecting the priority of the holder's interest and to the use of inside information for personal purposes (insider trading).
Proprietary transactions performed by the management company staff competing with those performed for clients, prejudicing these due to price changes caused by these transactions, to not respecting the priority of the holder's interest and to the use of inside information for personal purposes (insider trading).

Possible management independence conflicts of interest

Segregation of tasks and functions within the management company to ensure the independence of management from sales, control functions and so on and to guarantee the confidentiality of transactions.
Management should not be influenced by the investment in UCITS vehicles and securities of the management company or group, the securities must be chosen using the same selection conditions as the other securities in the portfolio.
When the group is unable to place all its securities on the primary market, a procedure must be introduced to ensure that the securities are by default placed with the group UCITS.
Soft commissions / benefits in kind: limits and monitoring for employees and the management company.
Independence in implementing the voting policy, even when concerning group securities.
Subscription by the portfolio manager to units or shares in the UCITS vehicles he or she manages: authorised but must be managed. Specific monitoring if the manager has a significant proportion of the portfolio assets, in order to ensure management independence, compliance with management objectives and equal treatment of holders.

Possible conflicts of interest regarding management company remuneration

Incentives for managers to implement a large turnover rate in the portfolios that is unjustified by economic and financial considerations and is solely in the aim of transaction fees ;
Rash risk-taking in investments or divestments solely in the aim of seeking a significant increase in the variable management fees ;
An approach consisting of systematically using or abusing UCITS vehicles in the management of mandates that are subject to a management fee retrocession agreement with the management companies concerned ;
An approach consisting of systematically using or abusing UCITS vehicles in the management of mandates of which the subscription fees subject to retrocession to the management company significantly exceed the market average. ;
Independence from distributors: the management company may be required to apply large subscription/redemption fees and/or management fee rates aiming to remunerate the distributor but that are not in the interests of the end customer ;

Possible conflicts of interest regarding the independence of the management company from principal shareholder Natixis Investment Managers :

Organisational independence :

Procedures introduced to safeguard the independence of the management company from the group regarding the choice :

of service providers
of the distributor / distribution network
of the broker(s)
of the custodian and/or registrar
of the valuation agent
of the financial management assignees
Competition between management companies within the same group must be possible: without constraints on products marketed, fees and so on.

Conflict of interest management

In the event of detecting a proven situation of a conflict of interest, the PMC may :

Reject the operation causing the conflict ;
Accept the operation and the situation of conflict of interest and implement the measures to manage the conflict in the best interest of the clients ;
Inform the client in the event of a conflict that can not be processed in the two preceding provisions.

Conflicts of interest shall be managed under the control of Conformity Supervisor, who shall enter all situations having generated a conflict of interest in a register.

 


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within portfolio companies.

04.2. Describe your process on managing incidents

The DNCA Group has appointed an Operational Risk Manager ("MRO") in charge of implementing the operational risk management system and is the NIM correspondent for any subject related to these risks.

The DNCA Group has operational risk mapping to identify and measure, in terms of frequency, severity and degree of control, the potential risks to which it is exposed.

Any incident or malfunction, detected by a collaborator, is reported to the MRO in accordance with the reporting procedures outlined in the procedure "Identification, follow-up and regularization of incidents".

The scope of the incidents collected covers all entities of the DNCA Group and are followed up in DNCA’s compliance committees (quarterly) and with all business managers (quarterly) to identify actions plan.


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