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.