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DNCA Finance

PRI reporting framework 2019

You are in Direct - Listed Equity Incorporation » Outputs and outcomes

Outputs and outcomes

LEI 12. How ESG incorporation has influenced portfolio composition

12.1. Indicate how your ESG incorporation strategies have influenced the composition of your portfolio(s) or investment universe.

Describe any reduction in your starting investment universe or other effects.

For SRI funds only, there are two impacts on 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. Our impact Fund DNCA Invest Beyond Semperosa can only invest in companies that are in the "Sustainable & Responsible" universe and that screen well on our proprietary Impact screen (AIM model: Additionality, Intentionality, Measurability).

Specify the percentage reduction (+/- 5%)

50 %

Describe any alteration to your investment universe or other effects.

All our SRI Funds seek to maximize their exposure to the Sustainable Transition, and as such all have a thematic approach. It follows the same process described in the screening section.

Select which of these effects followed your ESG integration:

12.2. Additional information.[Optional]

LEI 13. Examples of ESG issues that affected your investment view / performance

13.1. Provide examples of ESG issues that affected your investment view and/or performance during the reporting year.

ESG factor and explanation

Unexpected increases in staff turnover, workplace accidents or absenteeism may be early indicators of discontent or deteriorating labour relations which could affect competitiveness or financial performance.

ESG incorporation strategy applied Screening|Integration

Impact on investment decision or performance

We decided to put under negative watch a company in the business services sector because of a high turnover (100%, as they use fixed-term contract as try-out period) and strong doubt on human resources management. We will decide after meeting with the company whether we divest from it.

We divested from a company managing call centers because of deteriorating social indicators and as we discovered they did not have a HR officer.

We also raised with top management in several instances the fact that the deteriorating social KPIs was a source of concern. In several cases, the company offered a meeting with the Chief Human Resources Officer to discuss our concerns, which led to some successful engagement initiatives.

ESG factor and explanation

Tax optimization: change in effective tax rate, transparency on tax rates by country, number of subsidiaries in tax heavens and percentage of fiscal services in auditors' remuneration. We see aggressive tax planning as a clear accounting risk and a negative flag on the corporate culture. Tax strategies and the fiscal coherence is one of the 24 criteria we use to conduct our ESG analysis.

ESG incorporation strategy applied Screening|Integration

Impact on investment decision or performance

We divested from one of the GAFA that was originally in one of our SRI fund because of very aggressive tax planning. We believe Internet companies will face increasing fiscal pressure which in the end could affect their ability to grow and their profitability.

ESG factor and explanation

Governance quality

ESG incorporation strategy applied Screening|Integration

Impact on investment decision or performance

We divested from a construction company in our Infrastructure fund because because of the poor governance practices (management quality, accounting risks, financial communication, board and committee quality, CEO remuneration) which in our view will be an impediment on the company's ability to deliver its strategic plan and to grow sustainably.

ESG factor and explanation

We highlight new investment ideas regularly to fund managers, especially the ones managing SRI funds. Several stocks were selected because of their sustainable transition profile or because of their environmental profile especially looking at renewable energy, energy efficiency, energy storage and recycling.

ESG incorporation strategy applied Thematic

Impact on investment decision or performance

The Infrastructure & Transition fund has invested in a company specialising in clean hydrogen, a company that recycles slops from shipping and a waste and water treatment company after discussion with the RI team.

ESG factor and explanation

Using the carbon intensity stock by stock to adjust SRI portfolio profile (carbon footprint). 

ESG incorporation strategy applied Screening

Impact on investment decision or performance

We reduced our investment in a cement company in our European equity fund as it accounted for 50% of the overall carbon footprint of the fund, and it had a fairly low ESG rating (just above 4).

We arbitraged between two utilities with similar financial fundamentals using their respective carbon footprint (and their respective climate strategy) as ultimate determinant.

13.2. Additional information.[Optional]