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Lombard Odier

PRI reporting framework 2020

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (A) Implementation: Screening

(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

1. Negative screening: We have three levels of negative screening, including: our Group-wide exclusions on controversial weapons and soft food commodities, exclusions of securities subject to sanctions by the UN, EU, US and/or the Swiss government; SRI restrictions on tobacco, thermal coal and unconventional oil & gas; and additional values-based exclusions/restrictions specific to individual funds and/or clients upon request. (For further information please see FI 01.3)

2. Positive/best-in-class screening: Positive selection is designed to identify 'best in class' companies (i.e. companies displaying superior management of significant ESG risks - such as the consumption of resources, climate change, fair governance or other key social issues). Our proprietary, innovative and dynamic ESG/CAR approach (Consciousness, Action, Results) aims to differentiate those companies simply claiming good intentions from those which demonstrate actual results from actions undertaken. We have developed a similar tool for sovereign bonds.

3. Norm-based screening: exclusion of companies that breach internationally agreed standards or norms (i.e. child labour and other complicit violations of human rights as defined by the United Nations Global Compact principles)

04.3. Additional information. [Optional]

The information provided above is reflective of our asset management activities. Our private banking business applies the negative screening criteria to discretionary managed and advisory portfolios.


FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Investment restriction in companies deriving more than 10% (included) of their revenues from thermal coal extraction or power generation.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Exclusion of 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.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

We aim to mitigate the portfolio risk by excluding issuers with exposure to the most severe controversies as defined by the United Nations Global Compact Principles.

05.2. Additional information.

This information is reflective of our asset management activities.


FI 06. Screening - ensuring criteria are met

06.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

06.2. Additional information. [Optional]

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. This information is also made available 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.

Our ESG Solutions team integrates information received from our ESG data providers related to exclusions, restrictions and controversies into our proprietary data-management platform and communicates this directly to our investment teams and our risk management teams. Exclusions, restrictions and controversies are screened through our pre-trade filters and subject to on-going monitoring.

Risk management (internally managed funds): Our Operational & Counterparty Risk teams consists of experienced professionals covering counterparty risks and operational risks and are completely independent from the portfolio managers. We have a three layered-process for risk-management oversight related to sustainability:

  • SRI Restrictions on tobacco, thermal coal, and unconventional oil & gas and severe controversies - Lombard Odier has introduced restrictions related to investments in companies whose revenues derive from tobacco, thermal coal, or unconventional oil & gas above certain thresholds for their actively managed public funds. The same approach is applied to companies impacted by the most severe controversies. The list of companies affected by these restrictions is updated daily, and the risk management team discusses and reviews these holdings with portfolio managers on a weekly basis. These holdings are also subject to review by the Stewardship Committee, which includes a senior representative from the risk management team.
  • Monitoring exposure to issuers ranked in the bottom two ESG quartiles on a GICS sector level 2 basis. Additional scrutiny is given to holdings with ESG ratings in the third or fourth quartiles relative to their GICS sector level 2 peers. The risk management team discusses holdings with below-average ratings with portfolio management teams to ensure the appropriate mitigation of ESG-related risks are being taken within the fund.
  • Monitoring overall portfolios compliance with the investment process using internal benchmarks to compare holdings. The internal benchmarks screen out names that are considered Low ESG as well as the most severe controversies. The risk management team uses this to encourage managers either to improve their ESG rating or to engage with companies for change or improved sustainability disclosure.

This information is reflective of our asset management activities.


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