Lombard Odier is an independent firm, wholly owned by its Managing Partners. Our seven managing partners form the Board of Managing Partners (the Board), who are responsible for setting the vision and strategy of the Lombard Odier Group as well as general management and supervision of the Group. This includes oversight and accountability for our philosophy, investment approach and policies relating to sustainable investment.
At the Lombard Odier Group level, our sustainability philosophy, investment approach, and related policies are overseen by a Sustainability Steering Forum. This is made of senior management representatives from across our business, including members of the Board of Managing Partners. This Forum reports to the Board of Managing Partners.
There are three further layers of oversight and governance relating to the implementation of our sustainable investment philosophy and policies. Each of these initiatives reports to the Sustainability Steering Forum and is overseen by one or more Chief-level members of the management team. This is designed to ensure alignment with our sustainability focused investment approach:
Stewardship Committee: The Stewardship Committee is responsible for oversight and guidance relating to the discharge of our stewardship responsibilities for internally managed funds. Its members are representatives from across our asset classes, our two dedicated sustainability teams, and the compliance, risk and legal departments. It reviews and gives guidance on voting and engagement, serving also as escalation mechanism for votes/engagements when necessary. It is also the final arbiter of any disputes. The Committee is also responsible for the final sign-off on voting/engagement reports to boards and committees.
LOIM Sustainability Forums: within each asset class or investment team, one (or several) investment professionals act as internal ESG/SRI specialists in close collaboration with the central Sustainability/ESG teams. Alongside their own responsibilities, they are more particularly involved in the implementation and the monitoring of the Sustainable Investing policies and features across the portfolios or mandates of each investment team. They also keep abreast of the new trends and best practices in the ESG/SRI industry. However, all of our portfolio managers and analysts have full access to all of our sustainability-related data and analysis and are expected to keep abreast of important sustainability-related developments, particularly where they may have a material impact on an investment (ie where a particular sustainability challenge or ESG issue is financially material to companies operating in the sector an analyst is covering).
Our Private Client Unit: The Investment Forum consists of the Chief Investment Officer and the Product Category Heads. This Forum is informed by sub-forums across our different asset classes.
Risk management (internally managed funds): Our Operational & Counterparty Risk teams consist 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 – We have introduced restrictions for internally managed funds 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 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 stocks 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.
Implementation of Sustainable Investment – internally managed funds
At Lombard Odier, sustainability is a cross-team collaboration between investment teams and our dedicated sustainability experts, which allows us to blend systematic and fundamental analysis at all levels of the investment process. It also enhances our ability to identify risks and opportunities, and turn them into actionable intelligence.
Each investment boutique has discretion to decide how best to utilise the sustainable tools and resources in the manner that best suits their investment process and asset class. Our risk team provides additional oversight and has a good grasp of sustainability related issues and metrics.
We have two dedicated sustainability teams:
Sustainable Investment Research, Strategy & Stewardship Team (SIRSS) is responsible for identifying, analysing and mapping material sustainability challenges that are likely to affect the long-term viability of companies’ business activities and models. The team analyses the exposure of different sectors and industries to sustainability challenges, and companies' susceptibility to those challenges, working in close collaboration with sector analysts, investment teams and the ESG Solutions team. The team also works to develop and launch new sustainable investment products and solutions and is responsible for internal verification of green, social and sustainability bonds. The team is also responsible for carrying out our strategic objectives on stewardship, working directly, or in industry collaborations, with investee companies to promote sustainable business practices and business models, and enhance long-term value for clients.
ESG Solutions Team focuses on companies business practices and government sustainable policies. It conceives, develops and distributes various ESG assessment tools such as business practices scorings, controversy indicators and impact metrics. These tools are integrated by all our investment teams in their investment processes, through screenings, best in class, exclusions approaches for our systematic teams, and integration in the decision making process for our high conviction teams.