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Lazard Frères Gestion

PRI reporting framework 2019

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ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
99 %
Percentage of active listed equity to which the strategy is applied
1 %
Total actively managed listed equities 101%

01.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

To calculate the fair value we use the WACC valuation. The Beta used is calculated as follows :

>30% sector cyclicity ;
>20% financial leverage ;
>10% ESG criteria integration ;
>10% product mix ;
>10% geographic mix ;
>10% operational leverage ;
>10% management predictibility ; 

Therefore the ESG critera integration has a direct impact on our valuations.

It was the initiative of the equity team to incorporate ESG criteria in the cost of capital (WACC) because they believe that it is the most appropriate level of integration and a key element in assessing the intrinsic value of a company. Indeed, the promotion of ESG is likely to make great progress when the assessment of any type of investment is based on a WACC that fully incorporate sustainable development issues. As long as financial institutions do not challenge their model on that issue, their effort regarding sustainable development will look more like nice communications exercises.

This strategy is coordinated by our head of equity research and implemented by the equity fund manager-analyst's team.

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

Concerning Lazard Equity SRI, the integration strategy is also done through the Beta calculation.

The screening strategy is a Best In Class approach, based on the ESG evaluation of our partner Vigeo. The methodology is the following :

We exclude from our investment universe the issuers who are:

- The bottom 30% in terms of Human Ressources  
- The bottom 30% in terms of global score with this domains weights : Environment 30%, Human Resources 40%, Customer / suppliers relationships 10%, Human Rights 10%, Community Involvment 10%

 

Corporate governance is evaluated internally, and has to be satisfactory based on our analysis.

 


LEI 02. Type of ESG information used in investment decision (Private)


LEI 03. Information from engagement and/or voting used in investment decision-making (Private)


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

For our SRI investment strategy, we focuses on a best-in-class approach (an ESG approach selecting the best-rated issuers within each business sector), performed by our extra-financial partner, Vigeo Eiris. Lazard Frères Gestion has selected ESG investment criteria and attributed each one with a specific weight. Human resources and the environment carry the highest weights, 40% and 30% respectively. Therefore, companies that have a negative score in Human Resources and have a global rating that is negative are ruled out of the investment universe.

Criteria and weights:

1. Human resources (40%)

2. Environment (30%)

3. Business behaviour (10%)

4. Human rights (10%)

5. Community involvement (10%)

Each criteria is rated on a scale ranging from "--" for non-concerned companies to "++" for pioneer companies. Ratings are relative and adapted to each sector.

Corporate governance is evaluated internally, and has to be satisfactory based on our analysis.

In addition, we integrate ESG criteria into our valuation models. This integration is applied to all our equity funds.

Screened by

          Ottawa and Oslo conventions and GAFI country list (Groupe d'Action Financière)
        

Description

We rule out any investments in companies involved in the manufacture, transport or sale of antipersonnel mines and cluster munitions.

Lazard Frères Gestion has drawn up a country exclusion list (FATF banned countries) and a country watch list (countries under international sanctions or embargoes) for which permission must be obtained from the Chief Compliance Officer before any investments.
These lists include countries likely to be a major risk in terms of money laundering and reputation.

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

For any major changes regarding Lazard Equity SRI, because it is a SICAV, changes have to be approved by a Board of Directors.

Notification to clients/beneficiaries occurs post changes, with the updating of commercial documents within a maximum time-limit of 3 months.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]


LEI 06. Processes to ensure fund criteria are not breached (Private)


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information.[Optional]


LEI 10. Aspects of analysis ESG information is integrated into (Private)


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