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Liontrust Investment Partners LLP

PRI reporting framework 2019

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

B) 実施:テーマ

FI 07. Thematic investing - overview (Private)

FI 08. Thematic investing - themed bond processes

08.1. グリーン債原則に従ったテーマ債券の発行に関連する透明性や開示を奨励しているかどうか示してください。社会貢献債原則またはサステナビリティ債ガイドライン。

08.2. 発行体が提供文書の記載に従って、債券収益を配分していないときに取るべき対応策を説明してください。

There have not been any instances of holdings within the Sustainable Fixed Income portfolios that have breached the ruling to date.  If on the occasion that this did occur, the team would engage with the issuer to obtain more details contributing to this, and approach the 3rd party assurer to obtain results of this work.  Management would then be given a reasonable time period to rectify this issue and if after this time they had reached an unsatisfactory conclusion then they would either pursue getting their investment returned or divest of their holding in the company.

08.3. 補足情報 [任意]

FI 09. Thematic investing - assessing impact

09.1. 組織のテーマ投資の環境的または社会的影響を評価する方法を示してください。

09.2. 補足情報 [任意]

The Sustainable Investment team use a Sustainability Matrix to determine the eligibility of a company for inclusion in their funds. Their screening criteria are incorporated into the Sustainability Matrix rating for a company. The Sustainability Matrix helps to analyse how sustainable and responsible a company is. They analyse the product sustainability and management quality of each investee company in which screening and thematic ESG incorporation are also factored in. Product sustainability (rated from A to E): Assesses the extent to which a company's core business (the products or services it offers) helps or harms society and/or the environment. An 'A' rating indicates a company whose products or services contribute to sustainable development (e.g. renewable energy); an 'E' rating indicates a company whose core business is in a conflict with sustainable development (e.g. tobacco). Management quality (rated from 1 to 5): Assesses whether a company has appropriate structures, policies and practices in place for managing its environmental, social and governance risks/impacts. Management quality in relation to the risks and opportunities represented by potentially material social, environmental and governance issues are graded from 1 (excellent) to 5 (very poor). Companies need to be categorised C3 or higher in order to gain access to our Sustainable Future Corporate Bond Fund, whilst anything rated D3 and above is eligible for the Monthly Income Bond Fund (Institutional clients with segregated funds are able to tailor the Matrix cut-off according to their own thresholds). To help with the rating process, their analysts maintain a set of guidelines that provide further guidance on what influences how they rate companies using their sustainability matrix for each sector. The sector guidelines also highlight the potentially material environmental, social and governance issues that they expect management to be addressing and provide an indication of what we consider to be good practice. The Sustainability Matrix rating of the company is integrated into the fundamental analysis of the investee company.

The teams’ research has identified 20 areas of long-term growth within our economies. They believe that companies exposed to their themes (More efficient; Safer and more resilient; Healthier and with higher quality of life) tend to be better managed, exhibiting greater stability and lower risk, which they believe are key drivers of long term bond returns.

More efficient

Improving the efficiency of energy use; Increasing electricity from renewable sources; Improving management of water; Improving industrial processes and food production; Increasing waste treatment and recycling; Making transport more efficient.

Safer and more resilient

Enhancing digital security; Assuring better supply chains; Improving auto safety; Leading ESG management; Saving for the future; Insuring a sustainable economy; Increasing financial resilience.

Healthier and with higher quality of life

Providing affordable healthcare; Enabling innovation in healthcare; Building better cities; Providing education; Enabling healthier lifestyles; Connecting people; Delivering healthier foods.

In-house research is supported and supplemented by several external ESG information sources. Sustainalytics provides in depth reports on sectors/industries, as well as ESG ratings, Governance Metrics and ESG controversies reports for individual companies. MSCI provide carbon reports, analysing the carbon emissions of the overall funds and their constituent holdings. Ethical Screening also provide reports assessing companies against their internal screening criteria, and run regular checks to ensure invested companies remain within these screening thresholds. The team also consults an independent external advisory committee which meet three times per year made up of a panel of industry leaders and academics, who provide guidance and expertise in key areas of environmental and social impact. Whilst also drawing on information from company meetings, broker research, ISS Governance reports, academia and non-governmental organisations.

The team analyses how a company's ESG factors affect its valuation. For example, the team assesses relevant factors like pollution incidents, staff satisfaction and carbon emissions. Companies which have integrated these issues generally tend to have higher quality management and therefore, they are more likely to prosper from a business perspective.

The team uses a sustainability matrix based on product sustainability (A-E) and management quality (1-5). For product sustainability, the team assesses how a company's product or area of business helps or harms society and/or the environment. For example, an 'A' rating could be awarded to a company involved in renewable energy or education. An 'E' rating would be assigned to a firm that conflicts with the principles of sustainable development, for example, a tobacco company. For management quality, the team assesses a company's practices, policies and structure relating to its environmental impact as well as social and governance related issues. A firm with excellent practices would be graded 1, whilst one with poor management practices would be a 5. For a company to be considered for inclusion in the Sustainable Future Corporate Bond Fund and the European Corporate Bond fund must rank C3 or higher on the matrix, whereas for the Monthly Income Bond Fund D3 or higher is eligible.

This assessment is then combined with traditional fundamental credit analysis, through our credit templates. The templates look at fundamental metrics such as relative valuation, SWOT analysis and company financials to determine how robust or risky an investment is, and how the company's management of ESG issues impacts upon each metric. For example a key driver of long-term bond returns is the effective management of tail-risk, and identifying companies that have strong governance and management scores helps the team to avoid issues where the tail-risk is underpriced.

The following document outlines the Sustainable Fixed Income investment process and how they integrate ESG factors: