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Lombard Odier

PRI reporting framework 2020

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Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

At Lombard Odier, we believe our current global economic model is unsustainable. This model is “WILD” (Wasteful, Idle, Lopsided and Dirty). We believe our economy is already transitioning towards what we refer to as a ‘CLIC’ model that is Circular, Lean, Inclusive and Clean, and is fundamentally re-shaping risk and return dynamics across all sectors and asset classes. Market forces are overtaking policymakers and creating a positive feedback loop. A powerful combination of investors, consumers and technological innovation forces policy to accelerate and increases transparency on material sustainability issues. As an asset and wealth manager, we believe it is our fiduciary duty to help our clients mitigate the risks and capture the opportunities associated with the transition to a CLIC economy. At Lombard Odier, we have developed a robust, proprietary, science-based approach to analyze material forward-looking transition risk & opportunity and enhance our ability to calibrate risk and return as the transition unfolds. We also use our influence as stewards of our clients’ assets to encourage the adoption of economic models that are fully consistent with the Paris Agreement and UN Sustainable Development Goals.

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

Sustainable investing means many different things to many different people. We think about sustainability in portfolio management in two categories:

Sustainability as a core conviction: For our range of sustainability-themed strategies, sustainability is the main driver of alpha. In these strategies our 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.  Our high-conviction managers then use this universe as the starting point for further analysis and stock selection.

Sustainability integration: For strategies where sustainability is not the primary alpha driver, but sustainability is integrated to mitigate risk and protect portfolios and enhance returns as the transition unfolds.  This manner of positive selection is designed to identify 'best in class' companies (i.e., those that display superior management of significant risks and opportunities both in their business model and in their business practices).

Lombard Odier's sustainable investment framework covers two dimensions of corporate sustainability:  What businesses do (their business model and activities) and How businesses operate (their business practices). For each dimension, we focus on the most financially material issues to the sector and industry. In our view, both dimensions are 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. This analysis, conducted by our Sustainable Investment Research Strategy and Stewardship (SIRSS) team, combines top-down, macroeconomic analysis with bottom-up approaches to assess:

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

2. the susceptibility of each sector/industry to those risks & opportunities, is conducted by analysts and portfolio managers, 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. This includes looking at metrics relating to environmental, social and governance best practice. Our ESG Solutions team analyses 115 data points using our proprietary '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 look at the same data points to assess alignment of business practices with the 17 UN Sustainable Development Goals. Our analysis also looks at companies' exposure to controversies, which occur when companies breach internationally accepted standards or norms as defined by the United Nations Global Compact Principles. In our view, controversies could have a major impact on a company’s reputation and lead to lower market performance. Our assessment of business practices also looks at certain impact metrics, including companies' carbon and water intensity.

Our sustainability and ESG data and analysis is shared with all portfolio management teams, and relevant data is made available through our innovative quantitative platform, and also directly via managers’ Bloomberg terminals.

Stewardship: Based upon the intelligence and analysis gained from our dedicated sustainability teams, our asset management unit, Lombard Odier Investment Managers (LOIM), address issues that are financially material at the systemic-, sector- or company level through engagement and voting, either directly or through collaborative initiatives. We enter into a dialogue with companies to test and challenge their approach to the sustainability factors we think are most material to their prospects and will seek to influence their sustainability positioning in areas we think are weak or where there is room for improvement.

We also apply negative screening techniques designed, for example, to exclude sectors that can be considered as ‘unsustainable’ or 'unethical’, as well as 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) and are therefore subject to a high controversy rating.

We have three levels of negative screening:

1. Group-wide exclusions

Reflecting our Group policy on controversial investments, we systematically exclude:

  • Companies involved in the production or distribution of controversial weapons. Lombard Odier does not invest in companies that produce, trade or store controversial weapons (anti-personnel mines, cluster weapons, biological and chemical weapons, depleted uranium, white phosphorus).
  • Financial instruments directly linked to essential food commodities. Stable food prices are a crucial component of food security for many populations at risk. As we are concerned about the potential impact of commodities investments on the volatility of essential food prices, Lombard Odier has decided to permanently exclude all financial instruments (futures, options, swaps, indices, exchange-traded funds) that invest in essential foods (wheat, rice, corn, and soybeans).
  • 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.

2. SRI Restrictions

In addition to the above, we believe certain companies and sectors are unsustainable in the long term and should be subject to exclusion in actively managed funds. Companies in the tobacco, thermal coal, and unconventional oil & gas sectors are subject to thresholds to determine whether they are excluded. These restrictions are imposed on a ‘comply or explain’ basis whereby a stock that falls within the threshold will be flagged to the manager. These exclusions can only be over-ridden with the approvals of the relevant CIO and are subject to regular risk review by internal committee.

For active strategies, we would also normally look to exclude companies impacted by the most severe controversies from our responsible investment universe unless there are extenuating circumstances, with lower-level controversies subject to ongoing monitoring.

3. Additional exclusions / Restrictions

In some cases, our strategies may apply additional values-based exclusions or restrictions that are individual to the fund, or to individual client mandates upon request.

01.6. Additional information [Optional].


SG 01 CC. Climate risk

01.6 CC. Indicate whether your organisation has identified transition and physical climate-related risks and opportunities and factored this into the investment strategies and products, within the organisation’s investment time horizon.

Describe the identified transition and physical climate-related risks and opportunities and how they have been factored into the investment strategies/products.

We recognise and assess the importance of physical, transitional as well as reputational and liability risks of climate change, as part of our broader assessment of the sustainability framework related to climate change mitigation and adaptation, zero emissions, zero waste and resilient society. We assess the exposure to these risks (and opportunities) at an industry level, and our analysts look at susceptibility to these transitions at a company level. We have completed a materiality analysis, assessing the financial materiality of physical, transitional and reputational risks to 160+ individual industries.

With respect to physical risks, using proprietary geospatial analysis, we assess exposure to risks of flooding, droughts, cyclones, extreme weather, wildfires and non-weather related catastrophic events.

With respect to transitional risks, our assessment includes a review of risks related to the mitigation of greenhouse gas emissions, resource efficiency, waste reduction and the need to live within nature’s planetary boundaries. Our conclusions have highlighted the exposure of individual industries to these issues. While greenhouse gas emissions are highly material across many industries, we have also identified a number of key industries where other issues, such as mitigation of water scarcity, are equally material (especially in agriculture).

We also believe strongly in  the importance of including hard-to-abate transitioning industries when investing in the climate transition as these industries will be vital to future economic growth. We do not shy away from investing in the scale of transition required by these important but carbon-intense sectors.

We believe that there remains insufficient analysis in the market of the differential exposure of individual industries, companies and securities to climate risks and opportunities. Similarly, we believe that there is insufficient analysis of the financial impact, both from a risk as well as from an opportunity perspective, of these transitions. We also believe that the lack of clarity of the policy environment has hampered such analysis. To remedy these gaps in the market, we have invested in our internal analysis of these issues, and are addressing uncertainties through scenario-based, forward-looking judgemental analysis.

In our materiality mapping, we model the exposure of industries to climate change and other megatrends, under 3 different main scenarios:

(1) A business-as-usual scenario, based on current policies

(2) A middle of the road scenario, based on limited improvement in policy ambition (2.6C) with parameters included to adjust this scenario for a "delayed policy response"

(3) A sustainability scenario aligned with the Paris Agreement, based on a temperature increase of 1.8C

The interim conclusions from our materiality analysis highlight that transitional risks increase in the more sustainable, Paris-aligned scenario. Over the longer term, this scenario does, however, feature lower physical risks. In the business-as-usual scenario, transitional costs are lower, but this is offset by the creation of reputational and liability risks, that could pose an existential threat to responsible industries.

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

Describe the associated timescales linked to these risks and opportunities.

Short term (1-3 years)

Over the short term, we assess exposure of industries to near-term policy goals, as well as the costs of mitigation and adaptation. Over this timeframe, transitional risks are generally most acute, although reputational risks can materiality affect industries in a sudden and disruptive manner, as has been the case - for instance - in the fast fashion industry. Through our investment strategies, we seek to identify companies that are either offering solutions to the climate crisis, including in renewable energy, but also in industrial and financial sectors, as well as transitioning companies that are embarking on a pathway to lower emissions.

Medium term (3-5 years)

Over the medium term, we believe transitional risks become increasingly contingent on different policy scenarios, for which we employ scenario-based analysis to map out the range of potential exposure. We also, through company-level analysis and engagement, assess company strategies and internal goals, which may exceed policy goals in some best-in-class cases. We believe physical risks will continue to increase even over this timeframe, as the economic costs related to extreme weather has continued to follow an upwards trend.

Long term (5-10 years)

Over this timeframe, we believe a number of industries may experience profound change. Market forces are shifting the competitiveness of different industries, such as the rise of renewable energy at the expense of coal and other fossil fuels. Over this timeframe, innovation also becomes a clear driver of disruption, as seen for instance in the mobility space, with the advent of electric vehicles. Finally, over this timeframe we believe behavioural change among consumers becomes a significant factor, for instance as regards dietary habits and preference for more sustainable lifestyles.

Very long term (10-30 years)

Over this timeframe, we believe a number of the adverse consequences of climate change become increasingly noticeable and directly material. This includes impact on physical risk, crop yields and agricultural productivity, the loss of biodiversity, and loss of labour productivity, among others. The adverse consequences of these risks outweighs, in our view, the cost that would be involved with implementing more ambitious, mitigating policies.

While we identify the variations in risk exposure of each industry under each of these scenarios, in our planning, we continue to maintain the Paris-aligned scenario as our baseline and preferred scenario, and the one that we aim to strive towards as a firm, through our business practices and investment philosophy.

01.8 CC. Indicate whether the organisation publicly supports the TCFD?

01.9 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.


We have specific policies in place with respect to thermal coal, limiting investment in companies deriving a substantial part of their revenue from thermal coal. We do not apply automatic restrictions to other industries, where we believe companies may be positioned to transition, although where we believe companies have not set out a clear climate strategy, this is likely to have a material impact on our assessment of the investability of these companies.

ESG integration allows us to assess companies' business practices and performance across sectors regarding climate change mitigation (renewable energy use, carbon intensity, environmental policies etc…).

We believe traditional ESG data includes regional biases, and disproportionately favours firms with greater reporting capability and transparency. Moreover, most ESG indicators assess relative performance, compared to a wider industry, rather than assessing absolute progress (for instance towards a net-zero economy) or the industry's sustainability as a whole - as a result of which fossil fuel companies can achieve high scores. Finally, ESG data is generally backward-looking, and includes limited assessment of exposure to forward-looking sustainability challenges. This is why, for our active, high conviction strategies, we believe it is vital to carry out enriched assessment of companies’ carbon footprints. Focusing on unadjusted carbon footprinting can be misleading and inconsistent with a net-zero economy. At Lombard Odier, we focus on additionality in how we analyse companies’ footprint and embrace carbon-intensive companies that avoid or capture carbon in other parts of the supply chain.

We also believe that stewardship plays a vital role in informing the investment process and enhances the value of clients’ assets. We use the Oxford Martin Principles as the guiding framework for our stewardship to ensure companies have understood and incorporated the required global path towards a net-zero economy in their strategy and practices. Our dialogue with companies also informs our investment decision making by seeking disclosure of additionality-based footprint metrics and TCFD-aligned reporting.

We welcome the final recommendations of the Financial Stability Board (FSB) and the Task Force on Climate-related Financial Disclosures (TCFD). We believe it will enhance our ability to understand Climate-related risk and opportunities across sectors, by paving the way for enhanced, consistent and comparable disclosures of the material, decision-useful types of information that we believe to be highly investment relevant. The final recommendations create an important framework for creating the transparency necessary for investors to better analyse material risks and to understand how well companies are positioned for the transition to a low-carbon and climate-resilient economy.

We continue to develop our research and analysis capabilities around climate-related risks and opportunities as well as temperature alignment. One of our key priorities over 2020 will be to integrate this new information into our investment process and ensure our reporting frameworks are fully aligned with the recommendations of the TCFD.

1.10 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.


          We currently report in line with the TCFD guidelines for some individual clients. During 2020, we plan to expand our TCFD-aligned reporting and transparency.

SG 02. Publicly available RI policy or guidance documents


02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

02.3. Additional information [Optional].

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 and corporate sustainability. It is also responsible for defining the principles and architecture of the Group’s internal control system, supervising its implementation and monitoring its efficiency.

At the Lombard Odier Group level, our sustainability governance has two key centres of responsibility: i)  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, ii) our CSR Forum ensures alignment of the Group’s actions to our sustainability values. The CSR Forum includes two Managing Partners and seven Unit Heads representing the wide range of groups involved in Lombard Odier’s sustainability work: Corporate Sustainability, Investment Management, Investment Solutions, Branding, Philanthropy, Human Resources and Logistics.

Both the Sustainability Steering Forum and the CSR Forum report to the Board of Managing Partners. 

Our policies relating to sustainability are reviewed at least once a year and may also be updated on an ad-hoc basis as and when required (e.g. by law following a new regulation to transpose or following an internal policy update). All new, amended and retired policies require Board approval.

SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

The Group may face different conflicts of interest during its investment process depending on its business activities. At the asset management level, our principal objective when considering how to invest, engage and vote is to ensure that we fulfil our fiduciary duty by acting in the interests of clients at all times. We have implemented processes to address potential conflicts of interest to prevent them from influencing our investment, engagement and voting decisions/processes. Such processes include an override process, whereby our Stewardship team will be notified of any conflict of interest that would arise in connection with our exercise of investment, engagement or voting rights. At a private banking level, in addition to the referred fiduciary duty, we have put in place measures to identify and manage potential conflict of interest situations arising as a consequence of distributing our own Group's products. Such measures include in-depth reviews applying our Open Architecture methodology and specific committees with decisional power over the investment or not in Group products. 

03.3. Additional information. [Optional]

SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within investee entities.

04.2. Describe your process on managing incidents

Serious corporate responsibility failings tend to materialise in the short term as controversies. The impact of these events can be meaningful for investors because they create reputational issues, but also because they can lead to lower market performance. 
To understand this risk in the short term, we look at companies’ exposure to controversies and the severity of those issues, by applying a “Controversy Score” from 0 to 5, where 0 is no concern and 5 is a major concern. Companies with scores of 4 and 5 can be screened out of portfolios as a way to limit portfolio risk. We have implemented an internal policy whereby any controversy level 5 company is restricted for trading and should get a validation at CIO level for potential investment consideration. 
We will engage with companies that are included in the controversies’ basket, as a way to mitigate risks.