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Quoniam Asset Management GmbH

PRI reporting framework 2020

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
17 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
24 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
5 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
54 %
Total actively managed listed equities 124%

01.2. Describe your organisation’s approach to ESG incorporation and the reasons for choosing the particular strategy/strategies.

Quoniam's full incorporation strategy, as implemented e.g. in all mutual funds of the Quoniam Funds Selection (QFS) SICAV, follows internationally accepted guidelines and norms and builds upon thematic considerations.

It includes 3 steps:

Screening policies – focussing on controversial behaviour and business practices,
Integration of ESG related information in the investment process (i.e. in selecting assets)
Engagement with companies on sustainability issues

We feel committed to the sustainability of society and of the environment, and to act in the best interests of our clients. While we strive to achieve the full process described below, we may take slightly different approaches depending on clients' objectives and the mandate we have in segregate accounts.

 

Norms and guidelines in the approach:

Above and beyond legal and regulatory requirements we currently consider 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-Personnel Mine Ban Convention.

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.

 

Screening – We use negative screens filtering issuers with controversial business practices and/or business segments out of the permissible investment universe. Quoniam has developed a proprietary screening system and defined criteria that have resulted in a list of companies and issuers to exclude. 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/ratings: 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 such as dialogue with companies on sustainability issues and responsible proxy voting on behalf of our clients are usually post-investment decision activities, and are covered in detail within the LEA section. In addition, we adhere to and support industry initiatives.

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [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 typically requires the ownership of assets, engagement activities usually become effective "post-investment”.


LEI 02. Type of ESG information used in investment decision (Private)


LEI 03. Information from engagement and/or voting used in investment decision-making (Private)


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

For a detailed description of all screening criteria used by Quoniam, please refer to LEI 01.2. Data used to decide on (non-) compliance with these criteria is provided by established ESG data providers, as stated in LEI 02.4,

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.

Screened by

Description

Clients may choose to use specific positive (i.e. "white list") screening lists based on a variety of criteria. Such screens are typically provided by external service providers customers have selected independently.

Screened by

Description

Comprehensive norms-based screening is part of Quoniam's screening criteria (as described above and in LEI 01.2) and is applied when mandated by customers, e.g. in all mutual funds of the Quoniam Funds Selection (QFS) SICAV, which follow internationally accepted norms such as the UN PRI, UN Global Compact or Oslo Convention on Cluster Munitions. Data used to decide on (non-) compliance with these criteria is provided by established ESG data providers, as stated in LEI 02.4, as well as Norges Bank.

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

Screening criteria are reviewed, amended, put into effect and annulled by our SRI committee, considering both internal research and consultation of external research providers (see also answer LE02.4.). Screening lists are reviewed on a regular basis. We encourage clients to include information on these reviews in their customized reporting.

 


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure ESG screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

Quoniam's systematic analysis incorporates ESG data from established SRI data providers like MSCI ESG Research, ISS/oekom, S&P Trucost as well as further capabilities from a dedicated ESG team of our mother company, Union Investment.

In a first stage, these data, which covers about 32,000 securities, 14,000 issuers, 8000 companies and 104 countries is automatically imported into our data base.

In a second stage, data quality is validated and in-house research as well as other external research (e.g. Norges Bank list) incorporated into the data.  

In a third stage, we formally incorporate responsible investment policies of our clients in the investment process, applying either positive or exclusionary lists or screening criteria based on ESG factors (in case of the Quoniam Funds Selection (QFS) SICAV this step refers to the screening criteria as part of the full incorporation strategy described in LEI 01.3). If the exclusions lists are applied to reduce the individual universe of a fund the automated investment process can only choose securities from the reduced fund's universe. Furthermore, these lists are part of the daily investment monitoring process. This includes analysis of company structures reflecting corporate actions such as mergers and acquisitions.

In the last stage, all screening lists and criteria applied in the portfolio management process also feed into an internal audit system (MIG 21). Therefore, changes to the lists will lead to passive ESG guideline breaches and trigger appropriate actions within the portfolio management.


LEI 06. Processes to ensure fund criteria are not breached (Private)


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

Depending on clients' needs, themed funds are implemented via either

  1. Screening - White or Blacklists excluding significant parts of the investment universe - e.g. Christian values or shariah compliant investments
  2. Screening and Integration - e.g. for environmentally themed funds.

For example, for an environmentally themed fund screening would disallow investments in companies with controversies regarding environmental issues, having a high carbon intensity in their production process or business model and a high level of stranded assets. During the integration step in portfolio construction (see LEI 10) the portfolio would be tilted towards better performance in environmental KPIs.


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on robust analysis.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

          Available on front office research platforms and in our portfolio construction tool. Investment staff are required to discuss ESG information during investment committee meetings
        

09.6. Additional information. [Optional]

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 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 -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.

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.


LEI 10. Aspects of analysis ESG information is integrated into (Private)


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