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Lyxor Asset Management

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.
SSA
2 Screening alone
0 Thematic alone
0 Integration alone
98 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
100 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
48 Screening alone
0 Thematic alone
0 Integration alone
2 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
50 No incorporation strategies applied
100%

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

  

On SSA : Lyxor will not invest for legally reason in sovereign debt of countries sanctioned by United Nations.
 Country' listed on the French list of non-cooperative states and territories or the GAFI list (jurisdictions with deficiencies in the standards for combating money laundering and terrorist financing).

On Corporate (financial & non-financial): LYXOR applies  exclusion lists :

- LYXOR has decided to divest of the most exposed actors by excluding companies whose turnover from activities related to the extraction of thermal coal is greater than 10% and companies that belong to the energy sector, of which more than 30% of electricity generation (energy mix) comes from coal.

- Exclusion list that aggregates the firms that are involvement in activities linked to prohibited or controversial weapons (anti-personnel mines, cluster bombs, depleted uranium weapons); wherever legally possible and independently enforceable by Lyxor.

- LYXOR is able to provide its clients with a "norm-based exclusion" list, used in some of its sustainable investment solutions, excluding companies associated with serious and repeated breaches of the principles of the United Nations Global Compact.

 

 

01.3. Additional information [Optional].

 

Regarding exclusion list: 

As of July 31st, 2019, LYXOR has taken the commitment 1 to divest itself from coal while strengthening its dialogue with the companies concerned in order to encourage them to be more transparent and to take into account the risks and opportunities associated with climate change. LYXOR has thus decided to divest of the most exposed actors by excluding companies whose turnover from activities related to the extraction of thermal coal is greater than 10% and companies that belong to the energy sector, of which more than 30% of electricity generation (energy mix) comes from coal.

These criteria are applied by the entities of the LYXOR's Group according to the notion of 'best efforts' and taking into account legal and commercial constraints.

Lyxor applies an exclusion list based on its Defense Policy and strives not to invest in companies identified as being involved in activities linked to prohibited and controversial weapons such as cluster-munitions and anti-personnel mines and depleted uranium weapons.

The list is applied to Lyxor's swap based ETFs ,its Absolute Return funds, Risk Based and Solutions business as well as its Managed Account Platform, wherever legally possible and independently enforceable by Lyxor

LYXOR is able to provide its clients with a "norm-based exclusion" list, used in some of its sustainable investment solutions, excluding companies associated with serious and repeated breaches of the principles of the United Nations Global Compact. These ten principles of the Global Compact are derived from international standards and guide corporate behaviour in the areas of Human Rights, Labour, Environment and Corruption.

Example :

LYXOR has developed for a French institutional, a dedicated mandate to finance French SMEs and intermediate-sized companies that incorporate an ESG focus. This SMEs mandate, includes before each investment decision, an ESG Pre-Check that aim to evaluate an ESG risk score (as well as exclusion of controversial sectors, tobacco, coal...). Moreover, after the initial investment LYXOR will carry out every year an ESG due diligences on these companies, to analyze their strengths and weaknesses and to encourage them to improve their ESG integration.  

 

 

 


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:

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

          An  ESG & Climate risk assessment is performed on  actively managed  Fixed Income funds. Monthly reporting are provided to investment staff and clients on demand.
        

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
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

SSA 

1. ESG incorpporation :

In 2019, Lyxor has chosen to include ESG criteria in its management of European sovereign debt (High Quality Liquidity Assets).

Please refer to FI 04.3 for more details.

2.Exclusions

LYXOR applies exclusions in application of its SRI policy which presents the values ​​and practices established by our organization to integrate Environmental, Social and Governance ("ESG") issues into our various solutions. investment.

These exclusions relate to:  

  • the Ottawa Convention, which prohibits the use, stockpiling, production, transfer and destruction of anti-personnel mines;  
  • the country' listed on the French list of non-cooperative states and territories or the GAFI list (jurisdictions that have strategic deficiencies in the standards for combating money laundering and terrorist financing).

Unlisted companies

In a dedicated mandate, investing in unlisted French companies, LYXOR is excluding companies active in sensitive sectors as Tobacco, Weapons, Human cloning, Coal and Adult Entertainment. Moreover, an analysis of the controversies focused in particular on companies' compliance with the ten principles of the United Nations Global Compact is provided before any investment.

Listed companies

LYXOR applies exclusions list related to defense eand thermal coal. There are detailed in FI 04.3

 

04.3. Additional information. [Optional]

Lyxor Asset Management is integrating ESG filters into its sovereign bond management business

Based on MSCI ESG data, Lyxor now integrates a country's overall ESG score to assess its long-term economic sustainability in view of its exposure to environmental, social and governance risks. Governance has a weighting of 50% whereas the other two factors each have a weighting of 25%. We assume that good governance, including the effective functioning of a country's financial, political and legal institutions, is a dominant factor in a country's ability to address environmental and societal risks and to ensure the sustainability of its economic policy choices.

--------------------

Exclusions strategies : 

❑ Coal exclusion LYXOR has taken the commitment  1 to divest itself from coal while strengthening its dialogue with the companies concerned in order to encourage them to be more transparent and to take into account the risks and opportunities associated with climate change. LYXOR has thus decided to divest of the most exposed actors by excluding companies whose turnover from activities related to the extraction of thermal coal is greater than 10% and companies that belong to the energy sector, of which more than 30% of electricity generation (energy mix) comes from coal. LYXOR is thus part of the Societe Generale Group’s strategy for the total exit of coal by 2030 for companies with assets in the EU and the OECD and 2040 for the rest of the world. 

❑ Defence exclusion Since 2007, LYXOR has implemented an exclusion list based on the Defense Sector Policy, applied systematically to the assets of its ETF portfolios whose replication mode is indirect, as well as in its Absolute Return funds, Risk Based & Solutions and on certain funds of the managed account platform, to the extent that this is legally possible and at its sole discretion. This « Defence » exclusion list applies to companies that deal with the following weapons considered prohibited or controversial: • Anti-personnel mines, cluster bombs or their key components, • Depleted uranium munitions, as well as biological, chemical, nuclear or radiological weapons. For investment vehicles for which it is not yet possible to apply this exclusion list, LYXOR closely monitors the percentage of ownership of this type of assets.



----------------------------

 


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
Positive/best-in-class screening
Norms-based 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.

1/ Screening / Exclusion

For sovereign issuers :

These exclusions relate to:

- The country' listed on the French list of non-cooperative states and territories or the GAFI list (jurisdictions that have strategic deficiencies in the standards for combating money laundering and terrorist financing).

For corporate issuers :

- Coal Policy : LYXOR has decided to divest of the most exposed actors by excluding companies whose turnover from activities related to the extraction of thermal coal is greater than 10% and companies that belong to the energy sector, of which more than 30% of electricity generation (energy mix) comes from coal.

These criteria are applied by the entities of the LYXOR's Group according to the notion of 'best efforts' and taking into account legal and commercial constraints.

-the Ottawa Convention, which prohibits the use, stockpiling, production, transfer and destruction of anti-personnel mines; Lyxor uses the services of ISS Ethix to identify companies that are considered in breach of its Defence Policy. This list is reviewed on quarterly basis.

For unlisted companies :

LYXOR applies exclusions in application of its SRI policy which presents the values ​​and practices established by our organization to integrate Environmental, Social and Governance ("ESG") issues into our various solutions. investment.

These exclusions relate to:

-Respect of the ten principles of human rights, labor standards, the environment and the fight against corruption contained in the United Nations Global Compact;

-Specific sectors like Defense, Adult Entertainment, Human cloning, Tobacco, Thermal Coal (company with 20% of revenue in extraction or electricity)

2/ Integration of ESG criteria

For sovereign issuers , corporate financial and corporate ex financial issuers

LYXOR embraces ESG criteria across sovereign debt efforts.

LYXOR uses MSCI ESG data and a country's overall ESG score to assess its long-term economic sustainability. The calculation involves looking at the exposure to environmental, social and governance risks.

The new strategy involves calculating the total ESG score of the sovereign bonds available to invest in. The formula gives a weighting of 50% to governance, which leaves the societal and environmental factors with 25% each. The latest strategy involves overweighting sovereign bonds with good ESG scores. This does not mean they will disregard other sovereign bonds, instead a new focus will be aimed towards sustainable asset management.
 

 

 

 

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

SSA

Integration of ESG criteria

Lyxor AM embraces ESG criteria across sovereign debt efforts. LYXOR uses MSCI ESG data and a country's overall ESG score to assess its long-term economic sustainability. The calculation involves looking at the exposure to environmental, social and governance risks. 

The new strategy involves calculating the total ESG score of the sovereign bonds available to invest in. The formula gives a weighting of 50% to governance, which leaves the societal and environmental factors with 25% each. The latest strategy involves overweighting sovereign bonds with good ESG scores. This does not mean they will disregard other sovereign bonds, instead a new focus will be aimed towards sustainable asset management.

Corporate (non-financial)

For unlisted companies :

LYXOR applies exclusions in application of its SRI policy which presents the values ​​and practices established by our organization to integrate Environmental, Social and Governance ("ESG") issues into our various solutions. investment.

These exclusions relate to:

-Respect of the ten principles of human rights, labor standards, the environment and the fight against corruption contained in the United Nations Global Compact;

-Specific sectors like Defense + Adult Entertainment+ Human cloning + Tobacco + Coal (company with 20% of revenue in extraction or electricity)

 

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
SSA
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
SSA

Environmental

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.

SSA

SSA / ESG analysis process
Lyxor has adopted a sustainable approach to sovereign bond management with integration of EGS criterioa. Lyxor Asset Management is integrating ESG filters into its sovereign bond management business. This HQLA (High Quality Liquidity Assets) strategy, which enables Lyxor to manage the regulatory liquidity buffers of more than 20 banks, is accessible via dedicated mandates or funds and invested on investment grade sovereign bonds. It represents a total of more than EUR10 billion in AuM. 

Based on MSCI ESG data, Lyxor now integrates a country's overall ESG score to assess its long-term economic sustainability in view of its exposure to environmental, social and governance risks. Governance has a weighting of 50% whereas the other two factors each have a weighting of 25%. We assume that good governance, including the effective functioning of a country's financial, political and legal institutions, is a dominant factor in a country's ability to address environmental and societal risks and to ensure the sustainability of its economic policy choices.
 

 

Corporate (non-financial)

All ESG research is provided to Investment managers

For specific funds, an ESG analysis of issuer & bond (use of proceed) is performed internally :

Private Debt on SME , ESG analysis process

LYXOR has developed for a French institutional, a dedicated mandate to finance French SMEs and intermediate-sized companies that incorporate an ESG focus. LYXOR will integrate ESG analysis in the whole lifecycle of this mandate.

This SMEs mandate, includes before each investment decision, an ESG Pre-Check that aim to evaluate if the company has integrated ESG issues in its management or implemented CSR actions. LYXOR is searching notably for public and private document presenting the companies' CSR strategy including management of resources, consumption reduction as well as possible quantitative KPI. It enables LYXOR to carry out an initial ESG risk analysis to assess that the companies it might invest in have integrated these issues. 

An ESG evaluation is performed annually on each company LYXOR will invest in, with the support of a selected external service provider, Vigeo Eiris (extra-financial rating agency). This ESG due diligence will include a complete analysis of the company's ESG practices, conducted through a questionnaire specific to this type of actor, adapted to the sector and the size of the latter. 

We use this analysis to start a dialogue with these companies on their ESG integration with the attempt to foster their incorporation.

 

 

12.3. Additional information.[OPTIONAL]


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