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Grupo Fineco

PRI reporting framework 2020

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ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
100 %
Total actively managed listed equities 100%

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

During 2019, we have evolved from the exclusionary plus best-in-class approach (and with some but minority ESG integration) to an ESG integration approach for all of our directly invested listed equity. In fact, in order to expand our capacities and knowledge, we have set up the roadmap for creating groups of independent experts to better include ESG-related themes into our investment thesis and in order to have more accurate valuation models. We have started with Banking and Energy sectors (autos and telecoms are about to start in Q1/2020) with the aim of expanding them to all critical sectors (such as industrial sector, chemicals, pharma or food, among others). In our internal reports that we prepare for equity investment committees, we have extensively included analysis of ESG specific themes, such as environmental analysis on the auto sector and therefore, impacting our valuation models through adjustments to growth prospects, calculation of WACC or impact on cash flow analysis.

In addition to the implementation of ESG in the portfolio management, two great steps in 2019 have been to write our own voting principles and reach an agreement with Alembeeks to provide us assessment of other voting points at the General Assemblies of firms.

As stated in previous modules, goals set at the BoD level for all AuM in Fineco for the 2019-2021 plan in terms of integration, ESG labelling, proxy voting, training of the workforce, promotion of RI in Spain, taking part in international forums, etc. are cross asset class and engage all the workforce in Fineco.

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

Exclusions and best-in-class was the first step, but we have evolved. Now, exclusion still works but the range of companies is wider given that we have evolved to ESG integration as abovementioned comments.


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

We do not invest in companies whose main revenues come from:

- Nuclear weapons
- Alcohol and tobacco
- Adult-oriented contents
- Companies which don’t recognize and respect human rights

- Companies whose activities intentionally harm the environment

Screened by

Description

While "best-in-class" criteria is been left as minority in our listed equity universe (only for "Fon Fineco Inversion Responsable, FI"), we combine it in that fund with more accurate ESG integration as explained earlier.

Screened by

          Paris Agreement
        

Description

We have written emails to companies that we wanted to include in our portfolio but they are not under the UN Global Compact. We received responses from all the Investors Relations of those companies and we have included some of those companies since their responses not to be necessarily in the UN Global Compact were convincing for us.

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

The screening criteria are proposed by the Head of ESG Investment to the portfolio managers and the Head of Asset Allocation. After they approve it, the criteria is shared with the Investment Committee, which might suggest changes to the criteria.

There is constant dialogue among the analysts, portfolio managers, Head of ESG Investments and the asset allocator to fine tune the process. They get together on a quarterly basis to analyse the funds’ criteria and they are analysing how to expand the ESG criteria into the rest of the mutual funds and portfolios.

The constant dialogue between all participants is really important to have their own conclusions about the impact of negative screening, best-in-class, thematic and ESG integration into the fund and portfolio management. It is a learning process that generates continuos challenges and doubts how to solve specific issues that have no clear answer (such as how much room we have to give to engagement by a fund manager when a company shows little improvement). They review how the funds have performed compared with a predetermined benchmark and may suggest changes to improve ESG integration in the portfolio, as well as performance and risk.

When changes in the fund criteria are made, clients are not able to revoke them but, legally they are given a month to decide whether they remain in the fund or the switch to another one (without any costs in this case). 


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

05.1. Indicate which processes your organisation uses to ensure ESG 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.

05.5. Additional information. [Optional]

In 2019 we have given two important steps:

- First, the creation of an ESG committee with independent members that monitor de evolution of ESG implementation in Fineco and the management of controversies by different portfolio managers

- Second, the creation of working teams (four teams for the time being but they are going to be expanded to other sectors) with external experts in order to improve our analysis capacities in relation to detecting megatrends, ESG variables that can be critical to specific economic sectors, etc.


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 proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

Analysts and portfolio managers are taking into account ESG factors in a great extent (majority of equities). The reports from MSCI ESG Research and our sell-side brokers (JPM and Kepler, especially selected because of ESG capabilities) have been very helpful to improve our capacity and ability to do a more comprehensive analysis.

In addition, the teams of external experts are helping us a lot when considering these ESG aspects.


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 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.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

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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