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Groupama Asset Management

PRI reporting framework 2020

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

(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

Negative screening

Material and recurrent controversies on ESG issues : all corporate portfolios;
Coal mining,coal-related energy production : all corporate portfolios
Tobacco, Gambling, Weapons : thematic fund 

Positive screening

Each stock is screened according to E, S and G indicators. Governance analysis represents for all sectors 33% of the final rating, whereas E and S pillar’s weight depends on the sector.The choices of the relevant indicators and their weighting in the final rating are made by ESG analysts, and are reviewed regularly (usually every 18 months).Each company is rated on a scale from 0 to 100. Each sector of the universe is then broken down in 5 quintiles (quintile 1 is composed of the 20% best rated companies within each sector and quintile 5 is composed of the 20% worst rated companies within each sector).

A list of the most advanced issuers in terms of ESG issues is updated quarterly by analysts on the basis of their internal analysis. The choice must be justified in a dedicated dossier. The score of these companies is then increased to 100.

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

1. We assess environmental issues through our fundamental analysis. Climate related-risks and opportunities are included into our global vision and taken into account for each analysed company. To identify, assess and manage climate-related risks and opportunities, we have an environmental analysis which has 4 pillars depending on the sectors:

Strategic management of environmental (including climate) issues: identify physical risks, transition risks, opportunities related to climate change, governance on environmental issues, management risks process...
 Change in business model: current positioning of finished products / activities, means implemented by the company to change its business model
 Climate: carbon footprint, energy efficiency, internal carbon pricing, positioning the company in a 2°C scenario (new indicator in temperature)
 Resource and externalities management: 1/ efficiency of the production tool: energy consumption, water consumption, protection of biodiversity, 2/ externalities management: waste management, circular economy

Therefore, these environmental and climate issues are taken into account in the final recommendation if they have or will have a material impact on the company's activities and results.

2. Green bonds: an in-house "Green bonds" methodology (updated in 2019). This approach aims to assign an internal assessment to each green bond. Four criteria are analysed: 1/ characteristics of the green bond (evaluation and selection process, management of proceeds, etc) 2/ environmental quality of the projects 3/ ESG strategy of the company 4/ transparency

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

In 2019, we set up of a coal exclusion policy for all portfolios managed by Groupama AM (including dedicated funds and third-party mandates, unless the client instructs otherwise): progressive disinvestment of companies for which more than 30% of Revenue or Production mix is linked to coal (threshold lowered to 20% in 2020).

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Groupama AM excludes all investments in companies that have activities in the personal mines and/or cluster bomb businesses and/or depleted uranium weapons. We use external research to identify these companies. Two lists are regularly updated: the red list if involvement is verified and the amber list for companies that are suspected of being involved in these activities.

05.2. Additional information.

For corporate bonds (financial and non-financial):

Each stock is screened according to E, S and G indicators.

Each issuer is firstly rated according to a quantitative methodology. The ESG data is coming from ESG providers, GMI for Corporate Governance and Vigeo for Environment and Social analysis. The final rating is the result of this data and in-house determined weighting. Governance analysis represents for all sectors 33% of the final rating, whereas E and S pillar's weight depends on the sector. For example, for the energy sector social indicators represents 30% of the final rating and environment one's 37%. In the social pillar, the main indicators analysed are health and safety, human capital (management of skills) and corruption. In the environmental pillar it is GHG emissions, prevention of accidental pollution, management of resources, low-carbon strategy. The choices of the relevant indicators and their weighting in the final rating are made by ESG analysts, and are reviewed regularly (usually every 18 months).

Quantitative analysis leads to a rating from 0 to 100. If the issuer is followed internally by an analyst, this analysis can be modified by a qualitative approach. It is an integrated approach as each analyst is responsible for both financial and ESG review. For this qualitative analysis in-house methodologies have been developed on corporate governance, human capital and environment. If the analysts have a strong conviction deferring from the rating given by the quantitative analysis, qualitative analysis will lead to a different rating from 0 to 100. Portfolio managers and analysts have regular exchanges about these convictions.

Once the final rating is determined, each sector of the universe is then broken down in 5 quintiles (quintile 1 is composed of the 20% best rated companies within each sector and quintile 5 is composed of the 20% worst rated companies within each sector).


FI 06. Screening - ensuring criteria are met

06.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

06.2. Additional information. [Optional]

Pre trade : An automated system prevent investment managers from investing in excluded stocks at each order placed.

It is therefore not possible for a fund manager to buy a stock not eligible. When there is a change in the ratings, and a stock become non eligible, the fund manager has two three months to sell the stock. For that, there is a post-trade check process.

Every month, there is a post trade control for SRI funds, through the ESG reporting. Post-trade checks are made at each net asset value. There is no specific reporting at the level of the risk control team. If an overshoot is found, an alert is sent and the escalation procedure is initiated.


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