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Patrimonium Asset Management AG

PRI reporting framework 2020

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ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

Indicate (1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and (2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

Screening approach: We apply a screening approach to filter out potential portfolio companies which are active in any industry which is believed to be unethical, unsustainable or which goes against our company values. Through a screening approach, such companies are excluded from our investment universe at an early stage of the investment process in a very efficient way. Integration Approach:The analysis of the three ESG dimensions is fully integrated in our investment decision process. This way, the investment team ensures that any detectable ESG-related issue is identified and considered during the investment process. We seek to avoid any investment which would go against our company values or conflicting with our investors’ individual responsible investment principles. Moreover, as a credit lender, we are convinced that seeking responsible investments generally improves our downside risk protection, enhances preservation of capital and minimize reputation risk for both our investors and Patrimonium.*

01.3. Additional information [Optional].

*Combination of the above mentioned strategies: Through the combination of screening and integration strategies, we reduce in an efficient manner the probability of failing to identify ESG-related issues involving our investments. By first applying the screening strategy, dismissing companies linked with undesired industries is straight-forward and does not require any time-consuming process. In a second step, only if the potential borrowing company fulfilled the screening criteria, integrating the ESG factors in the investment analysis allows to analyse in more detail the compliance of that company to the ESG principles.

1.Screening: 

Patrimonium applies exclusion criteria on the following industries: 

Defense 

e.g. Weapons & Ammunition manufacturing 

Energy 

e.g. Oil and Gas exploration, Coal, Nuclear energy 

Health 

e.g. Tobacco, Alcohol 

Animals 

e.g. Pelts, animal testing 

Ethical 

e.g. Prostitution, Gambling, Pornography 

Furthermore, land as a resource captures full attention from Patrimonium. Indeed, activities requiring deforestation imply alarming climate risks as well as further potential issues (endangered animal species, biodiversity reduction or confrontation with native tribes living in the affected regions). Patrimonium refuses to finance companies linked with activities requiring direct deforestation.  

Patrimonium also carefully investigates methane emissions and potential gas leaks linked to the activities of our loan candidates. For example, energy producers using fracking methods represents a risk of methane leak which Patrimonium considers as too high to bear. Consequently, fracking is included in the list of industries that are out of our investment universe. 

2.Integration: 

To integrate the ESG analysis into our investment decision, Patrimonium’s analysts assess various relevant ESG factors for each ESG dimension. A sub- score is first obtained for each ESG dimension and then, an overall ESG score is computed based on the three sub-scores. See below various examples of ESG factors contributing to the sub-scores: 

Environmental issues 

- Company’s negative impact on water 

- Company’s waste

Social issues 

- To which extent does the company’s product harms by anyway its consumers  

- Negative impact of the company’s activity on the community (public health endangered, force to relocate populations, activity linked with nuisance) 

Governance issues 

- Shareholders’ background 

- Occurrence and extent of extraordinary payments to executives of the company 


FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

specify description

          Event-driven: Ad-hoc research. Situation-specific research and reaction to ESG relevant event.
        

03.2. Describe how your ESG information or analysis is shared among your investment team.

03.3. Additional information. [Optional]


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
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

Our screening approach is built in such a way that the investment requirements related to the ESG thematic mentioned in Patrimonium’s company values, the relevant investment product documentation (e.g. prospectus, investment guidelines, etc.), and the various investor side letters and requests are fulfilled.

The resulting screening criteria are reviewed each time the requirements are modified. Should the screening criteria change, concerned investors are notified per Email.

Through a screening approach, potential portfolio companies which are active in any industry which is believed to be unethical, unsustainable or which goes against our company values are excluded from our investment universe at an early stage of the investment process in a very efficient way. 

Patrimonium applies exclusion criteria on the following industries: 

- Defense: e.g. Weapons & Ammunition manufacturing 

- Energy:e.g. Tobacco, Alcohol 

- Animals: e.g. Pelts, animal testing 

- Ethical:e.g. Prostitution, Gambling, Pornography 

Furthermore, land as a resource captures full attention from Patrimonium. Indeed, activities requiring deforestation imply alarming climate risks as well as further potential issues (endangered animal species, biodiversity reduction or confrontation with native tribes living in the affected regions). Patrimonium refuses to finance companies linked with activities requiring direct deforestation. 

04.3. Additional information. [Optional]

Patrimonium also carefully investigates methane emissions and potential gas leaks linked to the activities of our loan candidates. For example, energy producers using fracking methods represents a risk of methane leak which Patrimonium considers as too high to bear. Consequently, fracking is included in the list of industries that are out of our investment universe. 


FI 05. Examples of ESG factors in screening process (Private)


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

06.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

10.1. Describe your approach to integrating ESG into traditional financial analysis.

The analysis of ESG risk is a main element of the whole investment process. Within the initial screening of an investment opportunity, a red-flag analysis is conducted in order to identify potential ESG risk factors. In case of existing ESG-issues which do not lead yet to an immediate rejection of the investment opportunity, the relevant topic becomes a crucial part of the subsequently conducted due diligence analysis. For given investments, ESG compliance is widely ensured by several elements structured in the loan contracts which is internally monitored on a regularly basis.

10.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

Corporate (non-financial)

We invest into one asset class, hence there is no differenciation.

10.3. Additional information [OPTIONAL]


FI 11. Integration - ESG information in investment processes

11.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is used to adjust the internal credit assessments of issuers.
ESG analysis is used to adjust forecasted financials and future cash flow estimates.
ESG analysis impacts the ranking of an issuer relative to a chosen peer group.
An issuer`s ESG bond spreads and its relative value versus its sector peers are analysed to find out if all risks are priced in.
The impact of ESG analysis on bonds of an issuer with different durations/maturities are analysed.
Sensitivity analysis and scenario analysis are applied to valuation models to compare the difference between base-case and ESG-integrated security valuation.
ESG analysis is integrated into portfolio weighting decisions.
Companies, sectors, countries and currency and monitored for changes in ESG exposure and for breaches of risk limits.
The ESG profile of portfolios is examined for securities with high ESG risks and assessed relative to the ESG profile of a benchmark.
Other, specify in Additional Information

11.2. Additional information [OPTIONAL]


FI 12. Integration - E,S and G issues reviewed

12.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
Corporate (non-financial)

Environmental

Social

Governance

12.2. Please provide more detail on how you review E, S and/or G factors in your integration process.

Corporate (non-financial)

The analysis of the ESG is not only conducted on the legal issuer (borrowing entity) of the credit facility but on the whole group.  

Environmental Issue: We evaluate:

- the company’s negative impact on climate during the whole production process,

- its waste production (non-degradable waste, waste management),

- its negative impact on water,

- its negative impact on land,

- its polluting emissions (methane, CO2)

Social Issue: In a first step, we evaluate the social issues which can be inferred from the available documentation. Then, we evaluate the likelihood that

- the worker conditions are insufficient (unhealthy, unsafe work environment, no diversity, unequal opportunities, no development opportunities)

- the human rights are not honoured by the company

- the community is negatively impacted by the company’s activities (public health endangered, force to relocate populations, activity linked with nuisance)

- the product or service provided by the company harms by anyway its consumers (unhealthy, unsafe product, integrity, data privacy of consumers not considered)

Governance Issue: In a first step, we evaluate the governance issues which can be inferred from the available documentation. Then, we assess the likelihood that:

- the company is fiscally not clean / involved with money laundering,

- the executives receive inadequate pays,

- corruption interferes within the company business,

- the nomination process of directors in not in the best interest of the company (advisory board structure),

- the cyber security aspect is neglected by the company

As company level data concerning ESG issues are usually not disclosed, we assess the likelihood of each risk elements based on the information we have regarding the industry, country, assets, shareholder structure, product, raw materials, etc. related to the analysed company.

If an ESG-related issue cannot be excluded, we further investigate the relevant elements until sufficient information is provided to evaluate the situation.

12.3. Additional information.[OPTIONAL]


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