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LSV Asset Management

PRI reporting framework 2020

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ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
72 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
28 %
Total actively managed listed equities 199%

01.2. Describe your organisation’s approach to ESG incorporation and the reasons for choosing the particular strategy/strategies.

LSV’s portfolio decision making process is quantitative and driven by (1) a proprietary model that ranks securities based on fundamental measures of value, past performance and indicators of recent positive changes and (2) a risk control process that controls for residual risk relative to a benchmark.  There are a variety of ways in which ESG plays a role in LSV’s quantitative investment process:

  • There are a number of signals in LSV’s model that relate to governance.
  • LSV can integrate certain ESG constraints into the portfolio construction process for clients that request it. 
  • LSV may choose not to purchase or increase its investment in particular issuers due to heightened ESG risk, such as news of a major environmental or governance risk related to the company.  Because LSV’s process is quantitative, LSV can typically find another highly ranked stock to replace a company that has such ESG risk associated with it.
  • LSV offers a commingled investment fund that excludes securities based on certain socially responsible investment considerations.
  • LSV can apply negative screens at the portfolio level for clients that request it.  Such screens can be applied based on client provided lists or based on certain third-party vendor data subscribed to by LSV.
  • Forecasts by equity analysts are factored into LSV’s quantitative model.  ESG factors, such as climate change, are considered by some equity analysts, and, therefore, have an effect on portfolio construction. 

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]


LEI 02. Type of ESG information used in investment decision (Private)


LEI 03. Information from engagement and/or voting used in investment decision-making (Private)


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

LSV can apply ESG factors at the portfolio level for clients that provide us with specifications.  LSV subscribes to two different ESG data sources, MSCI and ISS Governance, so that we can accommodate clients who would like to apply ESG principles to their portfolio.  In addition, clients may also provide LSV with a list of restricted securities.   

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

The types of screens applied are typically directed by the client.  Compliance with restricted lists are checked by the compliance module of Charles River, which checks pre-trade and post-trade compliance daily.  Restricted lists that LSV maintains are updated periodically throughout the year depending on the type of list.  Clients are not typically notified of updates to these lists.  Client provided lists are updated at the clients' discretion.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure ESG screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.5. Additional information. [Optional]


LEI 06. Processes to ensure fund criteria are not breached (Private)


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

There are a number of signals in LSV’s model that relate to governance.  In addition, ESG factors can play a role in any particular investment decision, such as news of a major environmental, social or governance risk related to the company. Also, LSV works with clients who specify the type of ESG profile they would like to have in their portfolio.  LSV then integrates ESG factors in the portfolio construction process as is appropriate.  This is currently done by constraining the portfolio at formation and at each rebalance to have an ESG profile based on certain metrics that is no worse than the portfolio’s benchmark.    


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

          The portfolio manager primarily responsible for LSV's ESG research periodically shares results with the entire investment and research team.
        

09.6. Additional information. [Optional]


LEI 10. Aspects of analysis ESG information is integrated into (Private)


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