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Investment process

HF 06. ESG data, research and other resources used

Please describe the ESG resources and tools used in your investment decision-making process.
Category of ESG
Reason for use
          The TerreNeuve investment team has developed a proprietary sustainability rating system for their investment universe over the last decade, which acts as an extended company due diligence framework. 
Forty percent of a company and sustainability rating feeds through from external ESG data sources such as: Sustainalytics, Trucost, Glassdoor, company reports, Google Trends, Bloomberg and ISS data. 
The remaining 60% comes from internally generated qualitative and quantitative inputs from the team. The majority of these inputs feed through from an intensive company meetings program, of around 700 each year. We have formed very strong relationships with company management teams in our sectors and benefit a lot from these meetings, both in terms of uncovering issuer specific factors as well as wider industry dynamics. We also directly ask companies for particular non-publicly available inputs that feed into our sustainability rating system (e.g. employee turnover data). 
In addition, we regularly interact with private companies, consultants, industry experts, NGOs and policy makers.
        
          The TerreNeuve investment team carries out in-depth, thematic sustainability research which is a key element of the idea generation process. The team regularly interact with regulators, private companies, consultants, industry experts, NGOs and policy makers on ESG issues. The team also occasionally supplement their own work with external ESG research.
        
          
        

Specify

          Proprietary modelling and engagement
        
          The TerreNeuve investment team has developed a proprietary sustainability rating system for their investment universe over the last decade, which acts as an extended company due diligence framework. 
40% of a company & sustainability rating feeds through from external ESG data sources such as: Sustainalytics, Trucost, Glassdoor, company reports, Google Trends, Bloomberg and ISS data. 
The remaining 60% comes from internally generated qualitative and quantitative inputs from the team. The majority of these inputs feed through from an intensive company meetings program, of around 700 each year. We have formed very strong relationships with company management teams in our sectors and benefit a lot from these meetings, both in terms of uncovering issuer specific factors as well wider industry dynamics. We also directly ask companies for particular non-publically available inputs that feed into our sustainability rating system (e.g. employee turnover data). 
In addition, we regularly interact with private companies, consultants, industry experts, NGOs and policy makers.
        
Select and explain how these resources are incorporated into the investment and risk management process?
Category of ESG
Investment/risk management process
Additional text (optional)
ESG data (proprietary, 3rd party, etc.)
          The information provided here is reflective of our 1798 TerreNeuve strategy.
        
ESG research (broker, etc.)
          The information provided here is reflective of our 1798 TerreNeuve strategy.
        
Other resources/tools/practices
          The information provided here is reflective of our 1798 TerreNeuve strategy.
        

HF 07. ESG incorporation into quantitative and fundamental analysis

07.1. Does your organisation uses quantitative analysis?

07.2. Does your organisation uses fundamental analysis?

Please indicate at which level ESG is incorporated into the analysis.
Fundamental approach
ESG incorporation
Outcomes and assessment/review

Please specify

          See additional information.
        
          The methodology of how the TerreNeuve team integrates sustainability into the investment process is explained in the “Additional information” section below.
The team constantly monitors the sustainability ratings of companies and reviews the weightings they allocate to different ESG factors in their rating system.
        

07.3. Additional information [OPTIONAL]

From a top down perspective the TerreNeuve investment team carries out in depth, thematic research on the sustainability trends they believe will influence their coverage sectors going forward. They analyse companies' portfolios of goods and services to see whether are well positioned to benefit from, or will suffer from, the development of these trends. 

From a bottom up perspective, as previously mentioned, the TerreNeuve investment team has developed a proprietary sustainability rating system for their investment universe over the last decade, which acts as an extended company due diligence framework. 40% of a company's sustainability rating feeds through from external ESG data sources such as: Sustainalytics, Trucost, Glassdoor, Company Reports, Google Trends, Bloomberg and ISS data. The remaining 60% comes from internally generated qualitative and quantitative inputs from the team. The majority of these inputs feed through from an intensive company meetings program, of around 700 each year. The team has formed strong relationships with company management teams in their relevant sectors and gain significant insight from these meetings, both in terms of issuer specific factors as well wider industry dynamics. The team also directly asks companies for particular non-publically available inputs that feed into their sustainability rating system (e.g. employee turnover data). In addition, they regularly interact with private companies, consultants, industry experts, NGOs and policy makers.

This information is reflective of our 1798 TerreNeuve strategy


HF 08. Changes to the RI incorporation process over the past 12 months

08.1. Could you please indicate whether there have been any changes to your RI incorporation process over the past 12 months (e.g. additional resources, information sources)?

08.3. If not, please explain.

          There have been no changes to the sustainability rating system used by the TerreNeuve team over the last 12 months. 

This information is reflective of our 1798 TerreNeuve strategy.
        

HF 09. Integration of Active Ownership

09.1. Please select and explain how active ownership practices are integrated into investment decisions.

          The Volantis team uses its voting power and has a comprehensive voting track record.
This information is reflective of our 1798 Volantis Strategy.
        
          The 1798 TerreNeuve investment team carry out an intensive company meetings program, of around 700 each year, which forms a key element of their investment strategy. The team has formed very strong relationships, regularly engaging with the company management in their sectors and gains significant insight from these meetings, both issuer specific factors as well as wider industry dynamics. It also regularly interacts with private companies, consultants, industry experts, NGOs and policy makers. The information gathered from engaging with company management is crucial in the team’s investment decision-making process.
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. 

This information is reflective of our 1798 TerreNeuve strategy and our 1798 Volantis strategy.
        

HF 10. Examples of ESG risks/opportunities in investment decisions

10.1. Please provide examples of where ESG risks and opportunities were incorporated into the investment decisions over the past 12 months.

Hedge Funds Strategy
Equity Hedge
ESG factors
Environmental|Governance
ESG risks/opportunities
          Sustainability of business models / activities: Risks related to re-pricing of assets with a large and/or growing CO2 footprint
Governance: Recognition and management of impact resulting from ESG-related risks on growth potential, operating costs and consumer demand
        
Financial risks
          Equity risks
        
Scope and process
          The TerreNeuve investment team carries out in-depth, thematic sustainability research which is a key element of the idea generation process. The team regularly interacts with regulators, private companies, consultants, industry experts, NGOs and policy makers on ESG issues. The team also occasionally supplements their own work with external ESG research. The TerreNeuve investment team has developed a proprietary sustainability rating system for their investment universe over the last decade, which acts as an extended company due diligence framework.
In one recent example, the TerreNeuve team conducted extensive analysis on a company with a strategy of increasing its operations in coal gasification (a process of producing syngas – a mixture consisting primarily of carbon monoxide and hydrogen, from coal, water vapour and oxygen). This process is highly carbon intensive and the development of the company’s business model as outlined by its management team would result in a very significant increase in the firm’s carbon footprint.
        
Outcomes
          Based on considerable research into the sector and the company, and on their continued in-depth expertise in decarbonisation, the TerreNeuve team believes this company will face a significant challenge to its business model going forward. Based on a rapid and significant increase in the company’s carbon footprint, the team felt this company would likely suffer from reduced growth potential, increasing operating costs and falling consumer demand. As a result, the failure of management to recognise those risks and adapt their business model accordingly increases the likelihood of a re-pricing in their shares. Accordingly, the TerreNeuve team increased their short position in this particular company.

This information is reflective of our 1798 TerreNeuve strategy.
        
Hedge Funds Strategy
Equity Hedge
ESG factors
Environmental|Social|Governance
ESG risks/opportunities
          Sustainability of business models / activities: the transition away from plastics packaging, and growth opportunities for aseptic carton packaging:
Our TerreNeuve team believes regulation and consumer backlash against plastics will lead to a change in packaging away from virgin
plastics and towards more sustainable solutions. We anticipate that the FMCG industry will be forced to adopt different packaging solutions to avoid penalties and meet consumer demand. We also believe that pulp & paper packaging will benefit from the gradual transition away from plastics.
        
Financial risks
          Equity risk
        
Scope and process
          The TerreNeuve investment team carries out in-depth, thematic sustainability research which is a key element of the idea generation process. The team regularly interacts with regulators, private companies, consultants, industry experts, NGOs and policy makers on ESG issues. The team also occasionally supplements their own work with external ESG research. The TerreNeuve investment team has developed a proprietary sustainability rating system for their investment universe over the last decade, which acts as an extended company due diligence framework.
During 2019, the TerreNeuve team carried out extensive analysis of a company with a leading position in producing aseptic packaging. The teams believes this firm is likely to benefit from a significant growth opportunity going forward given the transition away from plastics packaging. Their analysis showed this particular company benefited from an integrated business model, high client retention rate and high barriers to entry. Based on the team’s proprietary sustainability rating system, the company also rated above average, including on factors like climate change, natural capital & pollution, portfolio alignment with E&S trends.
        
Outcomes
          After extensive fundamental analysis, the TerreNeuve team concluded that the company benefited from attractive economics and growth potential that, in their view, was not reflected in the valuation. As a result, the TerreNeuve team initiated a long position in this particular company.

This information is reflective of our 1798 TerreNeuve strategy.
        

10.2. Based on your example(s) provided above, please specify whether the incorporation of ESG factors affected the risk-adjusted returns of your hedge funds.


HF 11. Derivatives products and ESG impact

11.1. Do you use derivatives instruments as part of your hedge funds strategies and/or Funds of Hedge Funds?

Please select all the applicable categories of derivatives used.
Listed/OTC
Category of derivatives

11.3. Please explain whether and how these derivatives impacted the risk-adjusted returns of your hedge funds investments?

Impact

Outcomes

          The TerreNeuve investment team often uses index futures as components of the packaged trades they utilise for their portfolio construction. 
We look at the performance of the packaged trades as a whole not at the individual index futures level.
        

11.4. Please indicate whether the use of derivatives triggered ESG risks/opportunities at the fund level?

11.5. Additional information [OPTIONAL]

          This information is reflective of our 1798 TerreNeuve strategy.
        

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