This report shows public data only. Is this your organisation? If so, login here to view your full report.

Groupama Asset Management

PRI reporting framework 2020

Export Public Responses
Pdf-img

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.

Our approach aims to incorporate ESG in every asset class (equity, credit and sovereign bonds). This conviction-based style of investment management requires to understand the transformations taking place in our society, prompt and effective identification of risks and rapid detection of the new opportunities for generating added value. We believe that three transitions are profoundly transforming today's business models and that ESG provides a key to analyse their impacts on corporates :

Energy and environmental transition: change over from an economy founded on fossil fuels to an economy based on low-carbon energy sources, with management of the environmental impacts of their activities.
 Digital transition: in-depth transformation of the internal processes of companies and of their relations with their customers and suppliers and with civil society, due to the use of new technologies and their capacity to store and manage data on a massive scale ("big data").
 Demographic transition: consequences of social trends - ageing population, urbanization and increasing inequalities - confronting companies with new challenges in the management of their human capital and customers.

With the combination of the ESG and financial roles in the Research team, the same analyst is undertaking the entire investment analysis. For each sector under review, our analysts determine the specific sectorial impacts of these transitions, which help them to select the relevant and material Environmental, Social and Societal criteria for their investment case. Governance is based on a cross-sectorial approach, and is a key element of our fundamental analysis. The assessment of each E, S and G pillar can then impact one of our financial criteria and therefore leads to a single combined financial and ESG recommendation. With this fundamental financial and ESG analysis, we aim to identify the players that are best positioned or most at risk with regard to the three transitions - digital, demographic and environmental.

Our ESG integration policy involves formalizing the consideration of ESG criteria in investment decisions, depending on the materiality of the issues at stake (with respect to the issuer and the industry) and the investment process being considered. In this way, ESG criteria reinforce key decisions and help to identify specific risks and opportunities.

To meet this goal we have set up internal ESG training courses for our asset managers.

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

SSA

Each of our ESG integration approach is specific to the type of fixed income invested in.

  • As we do financial analysis for companies, we do country risk analysis for sovereigns. Here again, ESG is fully integrated to the main macro analysis of countries (dedicated to mainstream fund managers).
  • In our country assessment, in our fundamental and institutional appraisal we conduct an extensive political and governance analysis, partly based on the World Bank's WGI indicators. Environment (Carbon footprint, Energy efficiency and Green growth) and Social (Human capital through the labor market efficiency, lifestyle, social cohesion and demography) are also part of the analysis.
  • Country risk analyses are written in duet by macro analysts and the ESG analyst specialized on sovereign ESG/ Corporate.

Corporate (financial)

The aim of our approach to integrating ESG is to measure the impact of ESG criteria on financial criteria and therefore on our final recommendations. In our analysis of securities, we concentrate on the “material ESG” criteria, i.e. the criteria having an impact on the financial criteria.

Definition of substantive ESG criteria  : Our approach concerning the substantive ESG criteria combines both top-down and bottom-up analysis. We start with a macroeconomic analysis, i.e. with the three transitions that we have identified as having structural significance, and then translate them into a microeconomic approach at the level of the sector and the individual security. This enables us to evaluate whether the company integrates the evolving changes of its ecosystem and to measure the company’s ability to adapt rapidly to new data in its established strategy.

Impact on financial elements :  Analysis of these ESG criteria provides an ESG evaluation with 3 ratings (positive, moderate and negative), together with an outlook. The analyst then defines which financial factors are impacted by these criteria, thereby providing an understanding of how the analysis of these extrafinancial factors will be integrated in the overall recommendation concerning the investment security concerned. 

Qualitative approach : E, S and G qualitative analysis is therefore integrated as a part of the fundamental analysis of an issuer.

The research culminates in a single combined financial and ESG recommendation, with the identification of :

1/the highest-risk issuers in terms of ESG, by means of the List of Major ESG Risks

2/the most advanced issuers in terms of ESG issues

Issuers are analysed according to six financial criteria and the three E, S and G pillars.The choices of the relevant indicators are made by ESG analysts, and are reviewed regularly. 

 

 

 

Corporate (non-financial)

The aim of our approach to integrating ESG is to measure the impact of ESG criteria on financial criteria and therefore on our final recommendations. In our analysis of securities, we concentrate on the “material ESG” criteria, i.e. the criteria having an impact on the financial criteria. 

Definition of substantive ESG criteria  : Our approach concerning the substantive ESG criteria combines both top-down and bottom-up analysis. We start with a macroeconomic analysis, i.e. with the three transitions that we have identified as having structural significance, and then translate them into a microeconomic approach at the level of the sector and the individual security. This enables us to evaluate whether the company integrates the evolving changes of its ecosystem and to measure the company’s ability to adapt rapidly to new data in its established strategy.

Impact on financial elements :  Analysis of these ESG criteria provides an ESG evaluation with 3 ratings (positive, moderate and negative), together with an outlook. The analyst then defines which financial factors are impacted by these criteria, thereby providing an understanding of how the analysis of these extrafinancial factors will be integrated in the overall recommendation concerning the investment security concerned. 

Qualitative approach : E, S and G qualitative analysis is therefore integrated as a part of the fundamental analysis of an issuer.

The research culminates in a single combined financial and ESG recommendation, with the identification of :

1/the highest-risk issuers in terms of ESG, by means of the List of Major ESG Risks

2/the most advanced issuers in terms of ESG issues

Issuers are analysed according to six financial criteria and the three E, S and G pillars.The choices of the relevant indicators are made by ESG analysts, and are reviewed regularly. 

 

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
Corporate (financial)
Corporate (non-financial)
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

Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

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

SSA

In our country assessment, in our fundamental and institutional appraisal we conduct an extensive political and governance analysis, partly based on the World Bank's WGI indicators. Environment (Carbon footprint, Energy efficiency and Green growth) and Social (Human capital through the labor market efficiency, lifestyle, social cohesion and demography) are also part of the analysis.

For instance while assessing Germany; we integrated a focus on EnergieWende, showing the cost, challenges and execution risks of the Nuclear Exit decided after Fukushima. On the Social side we analyzed in details Germany's Human capital, the quality of the education (professional training for technical studies) and low unemployment that will soon be offset by the decrease of its workforce, due to low fertility and a relative gender inequality in the professional sphere. 

Corporate (financial)

With our fundamental financial and ESG analysis, we aim to identify the players that are best positioned or most at risk with regard to the three transitions - digital, demographic and environmental - that are currently causing upheaval in our societies.

Each stock is screened according to E, S and G indicators. We saw previously that this qualitative analysis leads a rating from "Positive" to "Negative" opinion that can influence the financial recommendation.

Four main themes are reviewed for governance: shareholder minority rights, quality of the management, balance of power and disclosure of financial and non financial information. Social analysis is divided in two themes, human capital and societal approach. For Human Capital, four criteria are looked at: operational efficiency, work environment, strategic management of human resources and skills development. On the environment pillar, Groupama AM has developed a specific environmental analysis around the capacity of financial institutions to finance the energy transition. Finally our societal pillar methodology takes into account the integration of SDG's into the strategy of the companies, among others .

Corporate (non-financial)

With our fundamental financial and ESG analysis, we aim to identify the players that are best positioned or most at risk with regard to the three transitions - digital, demographic and environmental - that are currently causing upheaval in our societies.

Each stock is screened according to E, S and G indicators. We saw previously that this qualitative analysis leads a rating from "Positive" to "Negative" opinion that can influence the financial recommendation.

Four main themes are reviewed for governance: shareholder minority rights, quality of the management, balance of power and disclosure of financial and non financial information. Social analysis is divided in two themes, human capital and societal approach. For Human Capital, four criteria are looked at: operational efficiency, work environment, strategic management of human resources and skills development. The environmental analysis is made by looking at four subjects: regulatory impact, innovation (green products for example), efficiency in the management of the production (sustainable management of resources...) and management of the outputs (pollution, waste...). These criteria are analysed according to the specificity of each industry.

 Finally our societal pillar methodology takes into account the integration, by companies, of SDG's into their strategy, among others.

12.3. Additional information.[OPTIONAL]


Top