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Quoniam Asset Management GmbH

PRI reporting framework 2020

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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
50 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
50 No incorporation strategies applied
100%
Corporate (financial)
15 Screening alone
0 Thematic alone
0 Integration alone
20 Screening + integration strategies
0 Thematic + integration strategies
5 Screening + thematic strategies
0 All three strategies combined
60 No incorporation strategies applied
100%
Corporate (non-financial)
25 Screening alone
0 Thematic alone
0 Integration alone
15 Screening + integration strategies
0 Thematic + integration strategies
5 Screening + thematic strategies
0 All three strategies combined
55 No incorporation strategies applied
100%

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

We feel committed to the sustainability of society and of the environment, and became a PRI signatory in 2012. Furthermore, acting in the best interests of our clients is the basis for all our decisions. In fulfilment of our clients’ wishes, we may take different approaches to implement sustainability in our investment decisions – screening, ESG integration, or engagement. Which approach we choose will always depend on the individual mandate structure of the investor. When creating a new asset management or insourcing mandate, we strive to have the following guidelines included in the portfolio management to the greatest extent possible.

Qoniam's full incorporation strategy, as implemented e.g. in all mutual funds of the Quoniam Funds Selection (QFS) SICAV, managed by Quoniam and registered in Luxembourg, follows internationally accepted guidelines and includes screening, integration and engagement as well as thematic considerations (in segregated accounts, Quoniam may not be mandated to execute all dimensions). The detailed description of each of these building blocks as well as how combinations are used is provided in FI 01.3.

01.3. Additional information [Optional].

Screening systematically excludes issuers from the investment process from the beginning, i.e. prior to constructing portfolios, if they engage in business activities that are deemed controversial.

The integration approach incorporates ESG data and criteria into the traditional financial analysis during portfolio construction.

Engagement refers to controlling the assets we hold on behalf of our clients, and representing the interests of our clients to companies. As it requires the ownership of assets, engagement activities take place "post-investment-process", i.e. after constructing portfolios.

Selected thematic considerations occur within several steps of the incorporation process, e.g. the 'low carbon transition' or '2 degree target' goal is addressed by avoiding the top 1% greenhouse gas issuers (Screening), decreasing the portfolio's ecological footprint (Integration) and engaging with portfolio companies to reduce their carbon footprint (Engagement). Depending on clients' needs, themed funds, addressing goals such as Christian values, shariah compliant investments or environmentally themed funds, are implemented.

As they occur in different stages of the investment process, the above ESG incorporation strategies can be combined as needed. Which combinations we choose will always depend on the individual mandate structure of the investor.

A description of each of these building blocks is provided in the following:

 

Thematic - Above and beyond legal and regulatory requirements we consider in particular the following codes as authoritative.

  • United Nations Principles for Responsible Investment (UN PRI). In signing the UN PRI in 2012, we committed to intensifying the incorporation of sustainability issues into investment analysis and decision-making processes. This includes assuming responsibility for the environment, society and corporate governance.
  • BVI Rules of Conduct. The Rules of Conduct published by the BVI German Investment Funds Association set a standard for good and responsible conduct with investors' capital and investors' rights. Furthermore, BVI members made their aim to assume social responsibility in ESG issues.
  • UN Global Compact
  • EFAMA Code for External Governance
  • Montreal Carbon Pledge
  • Global Investor Statement on Climate Change
  • Oslo Convention on Cluster Munitions, prohibiting cluster bombs, as well as the Anti-Personel Mine Ban Convention.

 

Screening - Screening means filtering controversial business practices from the investment universe. Quoniam has developed a proprietary screening system and defined criteria that have resulted in a list of companies and issuers to exclude. In practice, this means that issuers are systematically excluded from the investment process from the beginning if they engage in business activities that are deemed controversial as regards weapons, human rights, labour rights, the environment, governance or tobacco production. Detailed screening criteria used are presented in the following.

  • Norges Bank exclusion list (Norwegian government pension fund exclusion list)
  • Production of cluster munitions and anti-personnel landmines
  • Production of key biological and chemical weapons components
  • Production of biological and chemical weapons, including weapons that use pathogens, toxins, or chemical substances that have toxic properties to kill, injure, or incapacitate
  • Production of incendiary weapons using white phosphorus
  • More than 1% of revenues derived from production of nuclear weapons
  • Violation of labour standards (ILO)
  • Violation of human rights
  • Environmental destruction and pollution scandals
  • Top 1% greenhouse gas issuers
  • Corruption
  • More than 1% of revenues derived from manufacture of tobacco
  • Additional mandate specific negative or positive screening criteria/lists (clients may choose to select other / additional screening criteria if they have additional needs (e.g. norms based criteria). They may also choose to use negative lists provided by external service providers they have selected independently; we are open to discuss such additional screenings, as already employed in the context of existing mandates)

In addition to these exclusionary screening criteria, we also conduct in-house research on special situations and ESG Events. Those might in some cases result in exclusion of, re-inclusion of or trading restrictions on specific companies (see LEI 13.1).

 

Integration - Quoniam's holistic integration approach serves to reflect that ESG is an integral part of the investment process, with ESG data and criteria being incorporated into the traditional financial analysis during portfolio construction. ESG integration results in a portfolio with a better sustainability profile, optimised in terms of ESG scores, ecological footprint and the UN's Sustainable Development Goals.

  • ESG scores: ESG scores are widely used in the context of ESG ratings. They allow us to cover a broad spectrum of sustainability metrics when picking securities for our funds.
  • Ecological footprints: A prominent example of an ecological footprint is the carbon footprint (carbon intensity) of companies. In pursuit of the internationally accepted 'two-degree target' and the decarbonisation of our economic system in the medium to long term, emissions are of particular - and growing - relevance. To calculate the carbon intensity of an investment portfolio, we look at the carbon emission of a company in comparison with their revenue. The weighted metrics for each portfolio company then yields the portfolio's carbon footprint. With this calculation methodology, it is possible to look at the carbon footprint of a portfolio without it being distorted by the portfolio's absolute value, or the value of the capital invested. Other examples of ecological footprints include waste and water footprints. Calculation and aggregation of these intensity metrics are similar to the approach used for carbon intensity.
  • UN Sustainable Development Goals (SDGs): The UN has defined 17 Sustainable Development Goals, also known as the Global Goals. Amongst these are an end to poverty and hunger, and the ensurance of affordable and clean energy by 2030. More and more companies report on how they contribute to these SDGs.

 

Engagement - Engagement refers to controlling the assets we hold on behalf of our clients, and representing the interests of our clients to companies. Engagement is covered within FI 14-16.


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

          ESG screening lists are regularly updated and integrated in investment guideline audit systems.
        

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

          ESG data is available and shown in our portfolio construction tool.
        

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

For a detailed description of all screening criteria used by Quoniam, please refer to FI 01.2. Data used to decide on (non-)compliance with these criteria is provided by established ESG data providers, as stated in FI 02.2.

As laid out, some clients / mandates may have chosen to use their own screening methodologies or permissible investment universe definitions, in which case Quoniam applies such criteria as instructed.  A Quoniam defined exclusion list of companies with activities in the production of controversial weapons, i.e. cluster munitions and anti-personnel landmines, key biological and chemical weapons components, biological and chemical weapons, incendiary weapons using white phosphorus and nuclear weapons, is applied to all mandates irrespective of client preferences.

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process (Private)


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

          Systematic checks are performed to ensure that stocks meet the fund’s screening criteria
        
Positive/best-in-class screening

other description

          Systematic checks are performed to ensure that stocks meet the fund’s screening criteria
        
Norms-based screening

other description

          Systematic checks are performed to ensure that stocks meet the fund’s screening criteria
        

06.2. Additional information. [Optional]

The Risk Control & Performance team monitors adherence to specific investment guidelines and client preferences, such as the exclusion of corporations from the investment universe that do not meet the requested criteria. All screening lists and criteria applied in the portfolio management process feed into an guideline audit system (MIG 21) and are checked on both a pre-trade basis and a post-trade basis. If a violation of investment guidelines is detected, a rectification process is immediately triggered.

Overriding responsibility for this process rests with the Chief Operations Officer (COO).

The Governance & Business Advisory team and Chief Compliance Officer (CCO) regularly review adherence to the above-mentioned regulations.


(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.

We engage with issuers and disinvest if no corrective action is taken.

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]


(C) Implementation: Integration

FI 10. Integration overview

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

Quoniam's holistic integration approach serves to reflect that ESG is an integral part of the investment process, with ESG data and criteria being incorporated into the traditional financial analysis during portfolio construction. ESG integration results in a portfolio with a better sustainability profile, optimised in terms of ESG scores, ecological footprint and the UN's Sustainable Development Goals.

ESG scores: ESG scores are widely used in the context of ESG ratings. They allow us to cover a broad spectrum of sustainability metrics when picking securities for our funds.

Ecological footprints: A prominent example of an ecological footprint is the carbon footprint (carbon intensity) of companies. In pursuit of the internationally accepted 'two-degree target' and the decarbonisation of our economic system in the medium to long term, emissions are of particular - and growing - relevance. To calculate the carbon intensity of an investment portfolio, we look at the carbon emission of a company in comparison with their revenue. The weighted metrics for each portfolio company then yields the portfolio's carbon footprint. With this calculation methodology, it is possible to look at the carbon footprint of a portfolio without it being distorted by the portfolio's absolute value, or the value of the capital invested. Other examples of ecological footprints include waste and water footprints. Calculation and aggregation of these intensity metrics are similar to the approach used for carbon intensity.

UN Sustainable Development Goals (SDGs): The UN has defined 17 Sustainable Development Goals, also known as the Global Goals. Amongst these are an end to poverty and hunger, and the insurance of affordable and clean energy by 2030. More and more companies report on how they contribute to these SDGs.

 

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

Corporate (financial)

The above mentioned process is applied to the entire corporate and financials segment. There is no difference in the process between corporates and financials.

Corporate (non-financial)

The above mentioned process is applied to the entire corporate and financials segment. There is no difference in the process between corporates and financials.

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
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]

In Quoniam's quantitative investment process, portfolio weightings are determined in a systematic portfolio construction process. It automatically calculates optimal weights combining forecasts for returns, risk, transaction costs as well as ESG KPIs such as ESG scores, ecological footprint and the UN's Sustainable Development Goals. The ESG metrics are treated as risk factors, so that the process is typically allocating towards superior ESG characteristics at the portfolio level.

Comprehensive data on the quality of a company's management are provided by MSCI ESG research. These data as well as internal derivatives of them are available to portfolio managers and used to monitor exposures.


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
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.

Corporate (financial)

ESG integration results in a portfolio with a better sustainability profile, optimised in terms of ESG scores, carbon footprint and the UN's Sustainable Development Goals.

In Quoniam's quantitative investment process, portfolio weightings are determined in a systematic portfolio construction process. It automatically calculates optimal weights combining forecasts for returns, risk, transaction costs as well as ESG KPIs such as ESG scores, ecological footprint and the UN's Sustainable Development Goals. The ESG metrics are treated as risk factors, so that the process is typically allocating towards superior ESG characteristics at the portfolio level.

Comprehensive data on the quality of a company's management are provided by MSCI ESG research. These data as well as internal derivatives of them are available to portfolio managers and used to monitor exposures.

 

Corporate (non-financial)

Our methodology for financial and non-financial issuers is the same.

12.3. Additional information.[OPTIONAL]


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