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Optimum Asset Management Inc

PRI reporting framework 2020

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income

ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

Indicate (1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and (2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.
SSA
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

Screening: negative/exclusion of companies with 25 % of revenues from coal power plants, 10 % of revenues from tobacco and weapons, antipersonnel mines, biological or chemical weapons in contravention of international humanitarian law.

Thematic: to integrate positive impact to the portfolios. When risk\return is aligned with our clients’ objectives and investments policies, we invest in bonds that are aligned with 17 Sustainable Development Goals set by the United Nations.

Integration: ESG scores, on a scale of 0 to 10, for Canadian corporate issuers from external providers, Groupe Investissement Responsable. Each security has an Environmental, social, Governance and an ESG rating with detailed analysis of ESG characteristics. The ratings below 3 are reviewed in-house. Our internal real-time front-office system provides ESG data by client portfolios. It provides a rating per issuer, sector and overall. Those ratings are compared with the benchmark.

We use a combination of those 3 strategies to optimized because we tough it was best way attain OGP’s and our client’s responsible investment objectives. We discard investment that are not aligned with our values with our screening, we aimed at having positive impact with our thematic investments and we invest in issuers with best practices through ESG integration.

01.3. Additional information [Optional].

Optimum Asset Management is of the view that responsible investment leads to better long-term results, which is in line with our investment values and philosophy. Our managers seek companies with long-term profitability and as a result, they manage financial and non-financial risks proactively. The intention is to make a constructive contribution to the success, sound governance and reputational risk management of companies with the view of optimizing their financial performance and the preservation of investors' capital.

Optimum Asset Management wants the companies which it invests in for its clients to behave as good corporate citizens in the environments where they operate, namely to act responsibly and to take part in the economic and social life of their communities.

Our philosophy of excellence prompted us to mandate Groupe Investissement Responsable (GIR) to conduct a comprehensive review of our processes and to prepare an audit report on responsible investment practices. The audit also allows us to compare our practices with industry best practices. GIR confirmed that it obtained the necessary information to produce the certificate, and its report concludes that:

  • Optimum Asset Management has put in place all the practices necessary to meet its responsible investment commitments;
  • Optimum Asset Management's initiative is based on a hybrid approach that is both comprehensive and product-specific; it combines systematic incorporation of ESG risks with the production of internal ratings, normative and sectoral exclusions, and mechanisms for dialogue and active management of voting rights; and
  • Optimum Asset Management is engaged in a process of continuous improvement for its responsible investment practices in order to exceed its commitments.

FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

specify description

          Issuers’ real-time ESG ratings in our front office system are compared with the corresponding benchmark
        

03.2. Describe how your ESG information or analysis is shared among your investment team.

          Issuers’ real-time ESG ratings in our front office system are compared with the corresponding benchmark
        

03.3. Additional information. [Optional]


(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

We have retained the services of Groupe Investissement Responsable (GIR) to provide an ESG rating for corporate issuers on the basis of four scores: environmental, social, governance and overall ESG. The weightings and justifications are detailed. The scores range from 0 to 10, with 10 being the highest score. The weighting of environmental, social and governance factors is defined by the issuer's sector of activity. For example, the environmental weighting, at 45%, is greater in the energy sector, whereas the social weighting, at 50%, is greater in the health care sector. We compare ratings of our portfolios with their benchmarks.

Our policy includes the following exclusions:

Coal: Companies that derive more than 25% of their income from coal-fired power plants. In addition, the Company must have demonstrated that in recent years it has reduced its Greenhouse Gas (GHG) emissions and plans to continue in this direction.

Tobacco: Businesses that derive more than 10% of their revenues from the manufacture of tobacco products.

Weapons: Any company involved in the manufacture and sale of anti-personnel mines, cluster munitions and biological or chemical weapons that contravenes the rules of International Humanitarian Law (IHL). Our ESG Committee reviews the prohibited and watch-list securities.

04.3. Additional information. [Optional]

Optimum Asset Management is of the view that responsible investment leads to better long-term results, which is in line with our investment values and philosophy. Our managers seek companies with long-term profitability and as a result, they manage financial and non-financial risks proactively. The intention is to make a constructive contribution to the success, sound governance and reputational risk management of companies with the view of optimizing their financial performance and the preservation of investors' capital.

Optimum Asset Management wants the companies which it invests in for its clients to behave as good corporate citizens in the environments where they operate, namely to act responsibly and to take part in the economic and social life of their communities.

Optimum Asset Management (OAM) has a formal internal policy concerning ESG factors, namely its Responsible Investment Policy. The policy has an impact on internally managed strategies.

Our ESG Committee, chaired by the Chief Investment Officer, Fixed Income, meets on a regular basis to review our practices and to conduct an internal analysis of securities rated below 3 by GIR. This internal committee is also responsible for drawing up a list of prohibited securities and watch-list securities. As already stated, the OAM investment teams exclude certain securities.


FI 05. Examples of ESG factors in screening process (Not Completed)


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

other description

          Watchlist and prohibited issuers list.
        
Positive/best-in-class screening

other description

          Front-office system integrates ESG ratings
        

06.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 07. Thematic investing - overview (Private)


FI 08. Thematic investing - themed bond processes

08.1. Indicate whether you encourage transparency and disclosure relating to the issuance of themed bonds as per the Green Bonds Principles, Social Bond Principles, or Sustainability Bond Guidelines..

08.2. Describe the actions you take when issuers do not disburse bond proceeds as described in the offering documents.

As of today, it has not occurred that proceeds were not disbursed as described. We carefully choose the bonds and projects we invest in. If it was the case, we would engage dialogue with the issuer to have explanations and seek resolutions. As a last resort, we would disinvest or no longer list the investment as impact investing.

08.3. Additional information. [Optional]


FI 09. Thematic investing - assessing impact

09.1. Indicate how you assess the environmental or social impact of your thematic investments.

09.2. Additional information. [Optional]

For our impact investing, we look at Green bond framework; their second opinion report and annual reporting on their achievements.


(C) Implementation: Integration

FI 10. Integration overview

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

In its operations, Optimum Asset Management applies three common practices associated with ESG factors to ensure that its investment strategies are always in line with responsible investment:

  • Incorporation of ESG factors into our management services: We work closely with Groupe Investissement Responsable for this purpose. GIR is a Canadian leader in the management of  proxy voting rights and ESG research.
  • Use of our technology tools with ESG factors: Our technology tools are developed to leverage ESG factors in our quantitative analyses to ensure that our management strategies comply with the principles for responsible investment.
  • Selection of value-added securities based on ESG factors: We target companies that, through their responsible practices, have a positive social and environmental impact that enhances their earnings and share prices.

In bond management, the members of the Credit Committee use the following criteria when selecting eligible bond issuers for all our portfolios:

  • Altman ratio: A ratio that determines a company’s probability of default over the next two years;
  • Credit rating: A rating provided by major rating agencies;
  • ESG rating: A rating established by Groupe Investissement Responsable for each Canadian issuer to cover environmental, social and governance aspects;
  • Merton model: A model used to assess the value of a bond relative to the valuation according to the capital structure.

We incorporate environmental, social and governance (ESG) principles into our security-selection process by including the external research of Groupe Investissement Responsable in our investment universe. This ESG rating is subject to an exhaustive review by internal bond analysts. GIR conducts an exhaustive analysis of the ESG factors of each Canadian issuer and assigns them a rating on a scale of 0 to 10, with 10 being the highest rating. Any company with a rating below 3 is reviewed more closely to ensure that certain aspects have not been overlooked or that the company is taking steps to improve its situation.

Our internal real-time computer system provides ESG data for client portfolios in the form of a matrix. Each security is assigned an E rating, an S rating and a G rating, as well as an overall ESG rating. The weighting of environmental, social and governance factors is defined by the issuer's sector of activity. For example, the environmental weighting, at 45%, is greater in the energy sector, whereas the social weighting, at 50%, is greater in the health care sector. The ratings of securities in the same sector are aggregated. The sector weightings are determined in this way, and then an overall rating for the portfolio is provided and compared with the benchmark.

We integrate environmental, social and governance (ESG) principles into our bond selection process.

Our ESG Committee, chaired by the Chief Investment Officer, Fixed Income, meets on a regular basis to review our practices and to conduct an internal analysis of securities rated below 3 by GIR. This internal committee is responsible for drawing up a list of prohibited securities and securities on watchlist.

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

SSA

Our approach integrates ESG into traditional financial analysis of Canadian federal, provincial and municipal bonds. We consider climate change, environmental policies and social impact, such as education and social housing in project financing. Also, we consider the quality of the governance of the issuers.

Unlike corporate bonds, SSA issuers don’t have ESG scores. We incorporate the United Nations’ Sustainable Development Goals into our portfolios. We focus on government securities issued to fund projects that contribute positively to society, such as Green bonds and entity that provide social services to the population.

Corporate (financial)

Optimum Asset Management applies three common practices associated with ESG factors to its operations to ensure that its investment strategies are always in line with responsible investment:

  • Incorporation of ESG factors into our management services: We work closely with Groupe Investissement Responsable for this purpose. GIR is a Canadian leader in the management of  proxy voting rights and ESG research.
  • Use of our technology tools with ESG factors: Our technology tools are developed to leverage ESG factors in our quantitative analyses to ensure that our management strategies comply with the principles for responsible investment.
  • Selection of value-added securities based on ESG factors: We target companies that, through their responsible practices, have a positive social and environmental impact that enhances their earnings and share prices.

In bond management, the members of the Credit Committee use the following criteria when selecting eligible bond issuers for all our portfolios:

  • Altman ratio: A ratio that determines a company’s probability of default over the next two years;
  • Credit rating: A rating provided by major rating agencies;
  • ESG rating: A rating established by Groupe Investissement Responsable for each Canadian issuer to cover environmental, social and governance aspects;
  • Merton model: A model used to assess the value of a bond relative to the valuation according to the capital structure.

We incorporate environmental, social and governance (ESG) principles into our security-selection process by including the external research of Groupe Investissement Responsable in our investment universe. This ESG rating is subject to an exhaustive review by internal bond analysts. GIR conducts an exhaustive analysis of the ESG factors of each Canadian issuer and assigns them a rating on a scale of 0 to 10, with 10 being the highest rating. Any company with a rating below 3 is reviewed more closely to ensure that certain aspects have not been overlooked or that the company is taking steps to improve its situation.

Our internal real-time computer system provides ESG data for client portfolios in the form of a matrix. Each security is assigned an E rating, an S rating and a G rating, as well as an overall ESG rating. The weighting of environmental, social and governance factors is defined by the issuer's sector of activity. For example, the environmental weighting, at 45%, is greater in the energy sector, whereas the social weighting, at 50%, is greater in the health care sector. The ratings of securities in the same sector are aggregated. The sector weightings are determined in this way, and then an overall rating for the portfolio is provided and compared with the benchmark.

We integrate environmental, social and governance (ESG) principles into our bond selection process, as well as GHG emission intensity when available.

Our ESG Committee, chaired by the Chief Investment Officer, Fixed Income, meets on a regular basis to review our practices and to conduct an internal analysis of securities rated below 3 by GIR. This internal committee is responsible for drawing up a list of prohibited securities and securities on credit watch.

With financial issuers, there is a second layer of analysis. We take into account the ESG impact of project financing.

Corporate (non-financial)

Optimum Asset Management applies three common practices associated with ESG factors to its operations to ensure that its investment strategies are always in line with responsible investment:

  • Incorporation of ESG factors into our management services: We work closely with Groupe Investissement Responsable for this purpose. GIR is a Canadian leader in the management of  proxy voting rights and ESG research.
  • Use of our technology tools with ESG factors: Our technology tools are developed to leverage ESG factors in our quantitative analyses to ensure that our management strategies comply with the principles for responsible investment.
  • Selection of value-added securities based on ESG factors: We target companies that, through their responsible practices, have a positive social and environmental impact that enhances their earnings and share prices.

In bond management, the members of the Credit Committee use the following criteria when selecting eligible bond issuers for all our portfolios:

  • Altman ratio: A ratio that determines a company’s probability of default over the next two years;
  • Credit rating: A rating provided by major rating agencies;
  • ESG rating: A rating established by Groupe Investissement Responsable for each Canadian issuer to cover environmental, social and governance aspects;
  • Merton model: A model used to assess the value of a bond relative to the valuation according to the capital structure.

We incorporate environmental, social and governance (ESG) principles into our security-selection process by including the external research of Groupe Investissement Responsable in our investment universe. This ESG rating is subject to an exhaustive review by internal bond analysts. GIR conducts an exhaustive analysis of the ESG factors of each Canadian issuer and assigns them a rating on a scale of 0 to 10, with 10 being the highest rating. Any company with a rating below 3 is reviewed more closely to ensure that certain aspects have not been overlooked or that the company is taking steps to improve its situation.

Our internal real-time computer system provides ESG data for client portfolios in the form of a matrix. Each security is assigned an E rating, an S rating and a G rating, as well as an overall ESG rating. The weighting of environmental, social and governance factors is defined by the issuer's sector of activity. For example, the environmental weighting, at 45%, is greater in the energy sector, whereas the social weighting, at 50%, is greater in the health care sector. The ratings of securities in the same sector are aggregated. The sector weightings are determined in this way, and then an overall rating for the portfolio is provided and compared with the benchmark.

We integrate environmental, social and governance (ESG) principles into our bond selection process, as well as GHG emission intensity when available.

Our ESG Committee, chaired by the Chief Investment Officer, Fixed Income, meets on a regular basis to review our practices and to conduct an internal analysis of securities rated below 3 by GIR. This internal committee is responsible for drawing up a list of prohibited securities and securities on credit watch.

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

Our SSA process integrates ESG into traditional financial analysis of Canadian federal, provincial and municipal bonds. We consider climate change, environmental policies and social impact, such as education and social housing in project financing. Also, we consider the quality of the governance of the issuers.

Unlike corporate bonds, SSA issuers don't have ESG scores. We incorporate the United Nations' Sustainable Development Goals into our portfolios and we calculate portfolio weights for each of the 17 goals.

We focus on government securities issued to fund projects that contribute positively to society, such as Green bonds and entity or projects that provide social services to the population, such as School boards, Hospitals and woodland protection.

Corporate (financial)

Optimum Asset Management applies three common practices associated with ESG factors to its operations to ensure that its investment strategies are always in line with responsible investment:

  • Incorporation of ESG factors into our management services: We work closely with Groupe Investissement Responsable for this purpose. GIR is a Canadian leader in the management of  proxy voting rights and ESG research.
  • Use of our technology tools with ESG factors: Our technology tools are developed to leverage ESG factors in our quantitative analyses to ensure that our management strategies comply with the principles for responsible investment.
  • Selection of value-added securities based on ESG factors: We target companies that, through their responsible practices, have a positive social and environmental impact that enhances their earnings and share prices.

In bond management, the members of the Credit Committee use the following criteria when selecting eligible bond issuers for all our portfolios:

  • Altman ratio: A ratio that determines a company’s probability of default over the next two years;
  • Credit rating: A rating provided by major rating agencies;
  • ESG rating: A rating established by Groupe Investissement Responsable for each Canadian issuer to cover environmental, social and governance aspects;
  • Merton model: A model used to assess the value of a bond relative to the valuation according to the capital structure.

We incorporate environmental, social and governance (ESG) principles into our security-selection process by including the external research of Groupe Investissement Responsable in our investment universe. This ESG rating is subject to an exhaustive review by internal bond analysts. GIR conducts an exhaustive analysis of the ESG factors of each Canadian issuer and assigns them a rating on a scale of 0 to 10, with 10 being the highest rating. Any company with a rating below 3 is reviewed more closely to ensure that certain aspects have not been overlooked or that the company is taking steps to improve its situation.

Our internal real-time computer system integrates ESG data for client portfolios in the form of a matrix. Each security is assigned an E rating, an S rating and a G rating, as well as an overall ESG rating. The weighting of environmental, social and governance factors is defined by the issuer's sector of activity. For example, the environmental weighting, at 45%, is greater in the energy sector, whereas the social weighting, at 50%, is greater in the health care sector. The ratings of securities in the same sector are aggregated. The sector weightings are determined in this way, and then an overall rating for the portfolio is provided and compared with the benchmark.

We incorporate the United Nations' Sustainable Development Goals into our portfolios and we calculate portfolio weights for each of the 17 goals.

Our ESG Committee, chaired by the Chief Investment Officer, Fixed Income, meets on a regular basis to review our practices and to conduct an internal analysis of securities rated below 3 by GIR. This internal committee is responsible for drawing up a list of prohibited securities and securities on watchlist.

Corporate (non-financial)

Optimum Asset Management applies three common practices associated with ESG factors to its operations to ensure that its investment strategies are always in line with responsible investment:

  • Incorporation of ESG factors into our management services: We work closely with Groupe Investissement Responsable for this purpose. GIR is a Canadian leader in the management of  proxy voting rights and ESG research.
  • Use of our technology tools with ESG factors: Our technology tools are developed to leverage ESG factors in our quantitative analyses to ensure that our management strategies comply with the principles for responsible investment.
  • Selection of value-added securities based on ESG factors: We target companies that, through their responsible practices, have a positive social and environmental impact that enhances their earnings and share prices.

In bond management, the members of the Credit Committee use the following criteria when selecting eligible bond issuers for all our portfolios:

  • Altman ratio: A ratio that determines a company’s probability of default over the next two years;
  • Credit rating: A rating provided by major rating agencies;
  • ESG rating: A rating established by Groupe Investissement Responsable for each Canadian issuer to cover environmental, social and governance aspects;
  • Merton model: A model used to assess the value of a bond relative to the valuation according to the capital structure.

We incorporate environmental, social and governance (ESG) principles into our security-selection process by including the external research of Groupe Investissement Responsable in our investment universe. This ESG rating is subject to an exhaustive review by internal bond analysts. GIR conducts an exhaustive analysis of the ESG factors of each Canadian issuer and assigns them a rating on a scale of 0 to 10, with 10 being the highest rating. Any company with a rating below 3 is reviewed more closely to ensure that certain aspects have not been overlooked or that the company is taking steps to improve its situation.

Our internal real-time computer system integrates ESG data for client portfolios in the form of a matrix. Each security is assigned an E rating, an S rating and a G rating, as well as an overall ESG rating. The weighting of environmental, social and governance factors is defined by the issuer's sector of activity. For example, the environmental weighting, at 45%, is greater in the energy sector, whereas the social weighting, at 50%, is greater in the health care sector. The ratings of securities in the same sector are aggregated. The sector weightings are determined in this way, and then an overall rating for the portfolio is provided and compared with the benchmark.

We incorporate the United Nations' Sustainable Development Goals into our portfolios and we calculate portfolio weights for each of the 17 goals.

Our ESG Committee, chaired by the Chief Investment Officer, Fixed Income, meets on a regular basis to review our practices and to conduct an internal analysis of securities rated below 3 by GIR. This internal committee is responsible for drawing up a list of prohibited securities and securities on watchlist.

12.3. Additional information.[OPTIONAL]


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