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ERAFP - Etablissement de Retraite Additionnelle de la Fonction Publique Pension Scheme

PRI reporting framework 2020

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

(C) Implementation: Integration

FI 10. Integration overview

10.1. Describe your approach to integrating ESG into traditional financial analysis.

Sovereign, municipal and supranational bonds are managed in-house. ERAFP's investment team is thus directly in charge of the implementation of the SRI policy defined by the Board. This approach is based on an ESG rating framework comprising ERAFP's five values (Human rights, Social progress, Employee democracy, Environment, Governance and transparency) which are declined into about forty criteria adapted to the specificities of countries, supranational bonds and local governments. Based on customised ESG scores and analysis provided by Vigeo, ERAFP's investment team ensures that investment proposals comply with ERAFP's SRI policy for this asset class: ERAFP cannot invest in issuers with overall ESG scores below average (50/100). Moreover, for supranational bonds, the SRI rate on at least one of the 5 SRI values of ERAFP's SRI Charter could not be below 25/100. For local governments bonds, the SRI rate on at least one of the 5 SRI values could not be below the half of average of the benchmark. On a bi-annual basis our ESG third-party providers (Vigeo) assess our bond portfolios and reviews are conducted with the Investment Policy Committee of the Board.

Aside from the integration of best in class ESG criteria the Board of Directors decided to add three specific exclusion criteria for sovereign bonds. Are excluded from the investment universe, countries which:

- have not abolished the death penalty,

- practice torture,

- have recourse to child soldiers.

Since the ERAFP SRI Charter review in 2016, ERAFP also specifies in its SRI Charter that it favours States that have ratified the International Labor Organisation's fundamental conventions.

Our investment universe for direct investment is relatively limited since it only comprises € denominated bonds issued by OCDE countries. As a consequence rather than implementing issuer selection rules based on a ranking of European countries, it has been decided to set a minimum ESG average score to obtain in order to be eligible for investment : ERAFP cannot invest in a country with an overall ESG score which is below the average (50/100).

On a bi-annual basis our ESG research providers (Vigeo) provide us with a third-party assessment of our portfolio: they identify the issuers in our portfolio which do not respect our SRI requirements according to their research.

10.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

SSA

We manage in-house only sovereign, municipal and supranational bonds.

10.3. Additional information [OPTIONAL]


FI 11. Integration - ESG information in investment processes

11.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
SSA
ESG analysis is integrated into fundamental analysis
ESG analysis is used to adjust the internal credit assessments of issuers.
ESG analysis is used to adjust forecasted financials and future cash flow estimates.
ESG analysis impacts the ranking of an issuer relative to a chosen peer group.
An issuer`s ESG bond spreads and its relative value versus its sector peers are analysed to find out if all risks are priced in.
The impact of ESG analysis on bonds of an issuer with different durations/maturities are analysed.
Sensitivity analysis and scenario analysis are applied to valuation models to compare the difference between base-case and ESG-integrated security valuation.
ESG analysis is integrated into portfolio weighting decisions.
Companies, sectors, countries and currency and monitored for changes in ESG exposure and for breaches of risk limits.
The ESG profile of portfolios is examined for securities with high ESG risks and assessed relative to the ESG profile of a benchmark.
Other, specify in Additional Information

11.2. Additional information [OPTIONAL]


FI 12. Integration - E,S and G issues reviewed

12.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
SSA

Environmental

Social

Governance

12.2. Please provide more detail on how you review E, S and/or G factors in your integration process.

SSA

All the countries in our investment universe are rated according to our ESG rating framework which comprises about 40 criteria. Countries have to obtain a minimum overall ESG score of 50/100 in order to be eligible to ERAFP's investments.

In order to support investment decisions country profiles are elaborated and updated on a bi-annual basis. Each issuer's profile includes a section on ESG which summarizes the strengths and weaknesses of the country on environment, social and governance issues.

In addition, the measure of specific environmental impacts conducted with a service provider is updated every year. In 2019, the sovereign bonds portfolio has a carbon intensity 2,6% lower than its benchmark (only composed of euro-denominated securities issued from OECD countries)

12.3. Additional information.[OPTIONAL]


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