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Lombard Odier

PRI reporting framework 2020

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SG 18. Innovative features of approach to RI

18.1. Indicate whether any specific features of your approach to responsible investment are particularly innovative.

18.2. Describe any specific features of your approach to responsible investment that you believe are particularly innovative.

Innovation is central to our philosophy and our offering at Lombard Odier.

We believe our sustainable investment framework is innovative because it covers two dimensions of corporate sustainability:  What businesses do (their business model and activities) and How businesses operate (their business practices). For each of these dimensions, we focus on the issues that are most financially material to the sector and industry. In our view, the combination of these two dimensions is essential to better inform investment decision-making based on in-depth, forward-looking analysis of how well companies are positioned for the transition to a sustainable economy.

Assessing the What: This dimension looks at companies' business models and activities. The SIRSS team's analysis combines top-down, macroeconomic analysis with bottom-up approaches to assess how well companies are positioned for the transition on a forward-looking basis. This includes identifying:

1. the exposure of different sectors to risks & opportunities arising from sustainability megatrends, including climate change scenarios, the macroeconomic world view, energy and mobility forecasts, for example;

2. the susceptibility of each sector to those risks & opportunities, including what business strategies exist to mitigate the risks or capture the opportunities, climate mitigation & adaptation, new innovative/disruptive technologies, and company preparedness.

Assessing the How: This dimension looks at companies' business practices in relation to their broad ecosystem of stakeholders. Our ESG Solutions team analyses 115 data points using our proprietary, innovative 'CAR' methodology (Consciousness, Action, Results), which enables us to differentiate between the 'talkers', 'doers', and 'achievers', and identify companies that are making measurable progress in the transition to more sustainable business practices.

We also carry out enhanced carbon footprint assessment focusing on additionality, which we believe is essential to illustrate the opportunity arising from the climate transition. Focusing on traditional, unadjusted carbon footprints can be misleading and inconsistent with a net-zero economy. At Lombard Odier we analyse the second order impact of companies’ activities to better capture their contribution to carbon avoidance. Some companies, for example, may have carbon-intensive processes, but their products go on to significantly reduce the carbon-intensity of other hard-to-abate sectors. The net second order impact can therefore be to avoid carbon emissions elsewhere in the value chain.

Our proprietary technology platform, which is common to all our internal portfolio management teams, is used to aggregate sustainability-information and ensure all the necessary sustainability-related information is readily available to the portfolio management teams at all times. This information is also made available to the teams directly via their Bloomberg terminals. As a result sustainability is tightly coupled to our portfolio management and construction process: sustainability figures can be monitored precisely overtime and used to trigger investment decisions but also serve for reporting purposes.