Within our internally managed hedge fund range, the manner and extent of sustainability and ESG incorporation varies by strategy. All of our managers have access to our sustainability-related expertise, tools and analysis, but individual managers have the discretion to integrate sustainability, or not, based on what they believe would be optimal for their asset class and strategy.
For some of our strategies, however, sustainability and active ownership is deeply embedded in their approach, based on the belief that sustainability is an important alpha generator.
Our TerreNeuve strategy, for example, is a global equity, market neutral strategy where sustainability is fully integrated into the investment decision-making process. The investment team carries out in-depth, thematic sustainability research and have developed a proprietary sustainability rating system for their investment universe over the last decade. This serves as an extended company due diligence framework. As the team carries out their bottom up and modelling analysis, they rank companies using their proprietary sustainability approach to assess how well companies are aligned with wider environmental and social trends or themes. This analysis is a fundamental factor in helping the team model projected company sales, margins and cash flows, for example, which helps them identify companies that are well positioned relative to sustainability dynamics, and those that are not. These views are then implemented through the strategy’s long-short approach. In addition, the team carry out extensive engagement and dialogue with companies, holding nearly 700 meetings a year. This is a critical process to inform investment decision-making, and to enhance value.
Active ownership is also a key element of the investment approach followed by our Volantis team. This team uses proactive, constructive engagement to inform deep fundamental analysis. This is designed to identify companies with sustainable business models and practices, or those who are transitioning towards greater sustainability. The team also uses this dialogue to work closely with a variety of stakeholders to help effect change in the belief that active ownership can enhance and sustain returns as companies who genuinely improve the sustainability of their business practices and models will outperform. The Volantis team carry out an extensive stewardship program, holding more than 1,400 meetings year, including site visits. The team also uses its voting power and has a comprehensive voting track record.
In addition, we apply screening across all of our internally managed hedge funds. Reflecting our Group-wide policy on controversial investments, we systematically exclude companies involved in the production or distribution of controversial weapons. Lombard Odier does not invest in companies that produce, trade or store controversial weapons (anti-personnel mines, cluster weapons, biological and chemical weapons, depleted uranium, white phosphorus). We also systematically exclude financial instruments directly linked to essential food commodities. Stable food prices are a crucial component of food security for many populations at risk. As we are concerned about the potential impact of commodities investments on the volatility of essential food prices, Lombard Odier has decided to permanently exclude all financial instruments (futures, options, swaps, indices, exchange-traded funds) that invest in essential foods (wheat, rice, corn, and soybeans). We also exclude securities relating to any countries, companies, entities or individuals subject to sanctions by the UN, EU, US and/or Switzerland, as well as relevant local sanctions.
This information is reflective of our internally managed hedge fund activities.