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Lyxor Asset Management

PRI reporting framework 2020

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(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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