For our internally managed sustainability themed strategies, sustainability is the main driver of alpha. In these strategies our sustainable investment framework can be used for positive selection of a universe of companies that are providing solutions to sustainability-related challenges (such as climate change), and/or those that are transition leaders within their sector or industry. We also apply exclusions and restrictions as outlined in our answer to LEI 1.2.
Our high-conviction managers then use this universe as the starting point for further analysis and stock selection.
Our investment team follows a systematic and high conviction disciplined approach by selecting sustainable companies within its proprietary thematic universe.
LOIM’s investment approach combines three pillars:
- A disciplined financial analysis of the investment universe,
- A dedicated review of business practices: the investment team considers extra-financial information provided by our internal ESG Solutions team’s analysis and conducts ad hoc additional investigation for companies with worst practices or worst controversies (or other ESG criteria). As part of this stewardship process, the investment team enters into dialogue with companies to better qualify our ESG-related concerns and monitor improvements.
- A fundamental in-depth analysis on business models, corporate strategies, exposure to long-term trends and economic cycles. By conducting in depth analysis, the investment teams assesses how companies defend their economic positions in the face of economic/market threats. We aim to select business models that benefit from strong and long-lasting competitive advantages with positive exposure to structural trends. The team also benefits from our dedicated SIRSS team, which helps monitor and inform investment teams on top-down global issues associated with sustainability challenges and their potential impact on sectors/industries.
This strong organisational support ensures that our investment team can make forward-looking investment decisions with the highest level of information and, therefore, conviction.
In the case of our internally managed sustainability themed strategies, the objective is to focus on companies whose business models and practices are aligned with a specific theme – for example, Responsible Consumption using a framework based on SDG12 (Responsible Consumption and Production). In this case, the strategy places a particular focus on sustainable food, urban systems, supply chains and lifestyle. We identify sustainable companies by considering the potential decoupling between their environmental impact and their economic activity: companies that we think are able to develop their activity and lower their impact in the same time. We aim at identifying these companies in order to benefit from the potential competitive advantage and risk management they have built around what we expect to be a consumption revolution, expressed by the SDG12.
At the strategy level, sustainability considerations are applied at three levels:
- Our investment universe systematically excludes the companies that we consider as having the worst ESG scores, based on business practices scores and the most severe controversies.
- Then companies are individually and specifically selected for their positive exposure to SDG12 challenges. SDG 12 is about responsible consumption and production. In other words, it is about decoupling economic growth from environment footprint. We look for opportunities across Sustainable Food, Sustainable Urban Systems, Sustainable Supply chain and Sustainable Lifestyle.
- In addition, the investment team will also undertake stewardship activities aligned with one of the key requirements of SDG12 (namely SDG 12.60), to encourage companies to adopt sustainable practices and to integrate sustainability information into their reporting cycle.
At the firm level, Lombard Odier has a non-negotiable, group wide exclusion policy under which investments in companies involved in the production, distribution and usage of controversial weapons are prohibited. Additionally, we will not invest in financial instruments (futures, options, swaps, indices, exchange-traded funds) that could participate in a price speculation of essential food commodities: wheat, rice, maize and soy beans. Also, we exclusively invest in jurisdictions with a clear rule of law. This approach is, of course, also applied to our sustainability themed strategies.
This information is reflective of our asset management activities.