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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 » (C) Implementation: Integration

(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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