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Lyxor Asset Management

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.

Convinced of the environmental, social and governance challenges facing civil society, LYXOR has defined – in line with its long-standing commitment to the Principles for Responsible Investment (PRI) of the United Nations, a responsible investor policy. This policy outlines the values and practices established by our organization to integrate ESG issues into its various investment solutions. Its main objectives are:

• Taking into account the risks and opportunities resulting from the non-financial analysis of companies,

• Investing to have a positive impact on social, environmental and corporate governance integration,

• Influence companiesto adopt more sustainable practices.

As part of its responsible investor policy, LYXOR focuses its commitments on three pillars : 

1- Design innovative solutionsincorporating ESG criteria 

2- Act as a committed and responsible shareholder

3- Integrate ESG into the core of its model 

In conjunction with the integration of ESG criteria into its investment strategy and its shareholder engagement policy, LYXOR takes climate issues into account as an integral part of its responsible investment policy and presents them in its Climate Policy.

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]

With a culture of innovation and the ability to design liquid and transparent investment vehicles, LYXOR is well positioned to help its clients meet the challenge ofsustainable investment. Indeed, LYXOR puts SRI at the heart of its investment strategy by creating concrete solutions that take into account environmental, social and governance factors. This consideration is based on the belief that non-financial analysis contributes to value creation, expands the selection process and contributes to the robustness of the management process. Our active and passive management solutions, as well as our expertise in fund selection, enable us to meet the growing demand forsocially responsible investments and the challenges of climate change.

1- DESIGNING INNOVATIVE SOLUTIONS INCORPORATING ESG CRITERIA

A- Exclusion strategies

Cf additional information hereafter

B-Thematic investments 

This strategy is based on financing sustainable projects or companies. Thematic investment encompasses a variety of themes, allowing investors to choose specific investment fields. This strategy requires the development of dedicated and tailor-made thematic impact solutions to generate social and environmental added value. Because they provide concrete solutions to sustainable development, these activities should benefit from attractive growth opportunities. Thus, LYXOR has developed dedicated 4 thematic funds aimed at delivering sustainable impact and financing some of the United Nations Sustainable Development Goals (SDGs), namely gender equality (SDG 5), clean water and sanitaion (SDG 6), affordable and clean energy (SDG 7) and climate action (SDG 13). 

C- ESG Selection 

This strategy involves the selection or overweight of the best performing companies identified by the ESG analysis, in a defined investment universe. This approach avoids the extra-financial risks that could compromise the company’s long-term financial performance. LYXOR applies this ESG strategy in both its active and passive solutions. 

D- Impact Investing

Impact investing aims to combine financial returns with a positive and measurable environmental and social outcome. The aggregation of those two objectives provides investors with concrete solutions to meet the Sustainable Development Goals.

In 2019, LYXOR collaborated with SEB (Swedish investor) on a Multi-manager strategy to provide an innovative ESG selection in order to create investment universes with a positive and measurable economic and/or environmental impact (otherwise referred to as “Impact Investing”).

2- ACT AS A COMMITTED AND RESPONSIBLE SHAREHOLDER

In order to promote best environmental, social and governance practices, LYXOR has defined a shareholder engagement policy that is based on two complementary areas (voting and engagement). By exercising its voting rights, LYXOR can contribute to improving the economic and financial performance of the companies in which it invests on behalf of its clients, to encourage the adoption of best practices and to mitigate the risk of business failure. 

A- Engagement Policy 

Convinced that the performance of a company is not solely based on its financial performances, LYXOR today expects companies in which it invests to take into account, and be transparent, on extra financial issues. Taking into account these environmental, social, societal and governance issues, is beneficial to the long-term performance of companies and therefore in the long-term interest of investors.

In order to promote best practices in this area, LYXOR has defined an engagement policy that is structured around three axes:

❑ A specific engagement to general meetings

As the representative of the shareholders UCIs that it manages, LYXOR undertakes to exercise the voting rights attached to the shares held by these UCIs in order to promote best practices in corporate governance. To do so, LYXOR will use its influence before general meetings, to initiate a constructive dialogue with companies and thus enrich the analysis work carried out internally by LYXOR.

❑ A thematic engagement on environmental,social and/or governance matters

Taking into account environmental, social and governance matters is essential to LYXOR’s strategy as a responsible investor. Engaging with companies to understand how they manage extra-financial risks and how they capture the associated opportunities is paramount. The goal of these engagement campaigns is to influence companies to improve or adopt the Corporate Social Responsibility best practices.

❑ A dedicated engagement on climate

International politics really took hold of the subject at COP 21 by adopting the Paris Agreement (2015), which made it possible to frame the climate change ambitions at the international level: to maintain the increase in global temperature well below 2°C, and further efforts to limit this increase to 1.5°C. Once the framework is defined, it is necessary that each one at his level seizes the subject and makes evolve the practices Thus, LYXOR has decided to focus on the issue of climate change, representing resolutely one of the major challenges of the 21st century and has joined Climate Action 100+, an international initiative led by investors to engage systemically important greenhouse gas emitters and other companies across the global economy that have significant opportunities to drive the clean energy transition and help achieve the Paris Agreement targets. The choice of climate change as the first thematic engagement campaign is in line with LYXOR’s socially responsible investment policy

 

3 - INTEGRATING ESG AT THE HEART OF OUR MODEL

In addition to taking into account non-financial criteria that play a key role in the development of our activities, LYXOR has implemented a proprietary methodology to achieve an ESG & Climate rating (including carbon footprint) of its investment vehicles.

This ESG & Climate assessment makes it possible to identify the risks and opportunities of the various issuers (companies and governments) in the portfolio. All asset classes (stocks and bonds, including companies, countries, government organizations) are covered. The investor can thus analyse his exposure to these risks and benefit from an ESG and Climate assessment of his investment vehicles.

01.6. Additional information [Optional].

          Exclusions strategies : 

❑ 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.

❑ 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. 

❑ Norm-based exclusion 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. 

❑ Tailor-made multicriteria exclusion LYXOR offers the possibility to implement tailor-made multicriteria exclusions, in line with our clients' SRI concerns, such as the exclusion of companies associated with major ESG controversies or involved in particular activities or sectors. In some funds, LYXOR excludes companies involved in activities or sectors deemed controversial (Gambling, Tobacco, Human Cloning...) or having the majority of their income from sectors with major ESG risks (Coal, etc.). 

❑ Investment based on agriculture for agriculture-based investment funds and products: • LYXOR refrains from creating funds likely to contribute to agricultural commodity price inflation, • LYXOR does not proactively market products that focus primarily on agricultural commodities. For each new product likely to have exposure to agricultural raw materials, LYXOR carries out a specific analysis to ensure that these new funds or investment products comply with the criteria of the Société Générale Group’s Agriculture, Fisheries and Agri-Food Sector Policy
        

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.

In the face of climate and ecological upheavals, preserving environmental balances is becoming a real challenge. Changes in the global economy, societies and industries are becoming necessary to meet the Paris Agreement commitmentsto keep global warming below 2°C. As an asset manager, LYXOR is convinced that responsible investments must be accessible to all, from large institutions to individual investors. We also believe that investment can serve the world around us, helping to allocate assets where they are most needed. Thus, in conjunction with the integration of ESG criteria into its investment strategy and its shareholder engagement policy, LYXOR takes climate issues into account as an integral part of its responsible investment policy. This climate policy includes our actions and strategies to combat climate change and provides a conceptual and operational framework for integrating these issues into our asset management business. LYXOR’s goal is to evolve this policy to better address climate and transition challenges to a low-carbon economy.

LYXOR’s climate policy is based on four fundamental pillars:

  • Providing innovative solutions for climate transition
  • Divesting of coal
  • Acting as a committed and responsible shareholder
  • Assessing portfolio climate risks 

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.

In addition to the ESG rating, and in the light of the consideration of climate risks and portfolio contribution to energy and ecological transition, as well as LYXOR’s alignment with the international objective of limiting global warming to 2 degrees by 2100, LYXOR published new indicators to measure climate risk exposures, such as the share of companies with fossil fuel reserves, in order to better target risks and opportunities for energy companies, in relation to climate change.

LYXOR provide its clients with the Greenhouse Gas (GHGs) emissions associated with each product normalized based on the amount invested. 

LYXOR also disclose additional dimensions of carbon risk at the portfolio level, such as associated fossil fuel reserves, exposure to climate-related opportunities etc. We believe that such multi-dimensional disclosure would allow for a more comprehensive assessment of portfolio level carbon risks and opportunities. 

Examples :

In terms of exposure to transition risk, LYXOR presents the portfolio exposure to issuers with fossil fuel reserves (in terms of the weight of the portfolio), which may be stranded in the context of a low carbon transition. Thermal coal reserves are the most carbon intensive and therefore the most at risk. In that the total potential emissions of existing known fossil fuel reserves vastly exceed the limit of emissions that scientific consensus indicates must be met in order to manage climate change, many of these reserves may not be usable. If this is the case, the market values of companies holding reserves may be overstated because they are based in part on the present value of these reserves assuming that they can be fully utilized.

In regards with carbon risk management, LYXOR presents at the portfolio level a classification of issuers based on their efforts concerning energy initiatives (use of cleaner energy sources, energy consumption management and operational efficiency, carbon reduction targets). Companies have a variety of strategies to reduce emissions, including setting targets for reductions, using cleaner energy sources and managing energy consumption. While these efforts vary considerably across companies. We categorize them as No Efforts, Some Efforts, and Aggressive Efforts to make them more comparable. This information is presented for the portfolio .

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.

Describe

More than 400 funds are assessed by the tool ESG & Climate Risk Assesment on a monthly basis.  

LYXOR has decided to publish the following exposures calculated at the portfolio level: 

• Portfolio Carbon Footprint: the measurement of GHG emissions from investments, gives investors an indication of their current financed emissions. 

• In regards with transition risk and more specifically, the stranded assets, LYXOR has chosen to present : 

  • The share of reserves (thermal coal, gas, oil) of which an investor would be responsible according to his investment in the portfolio (per/ $ M invested), 
  • Potential emissions associated to these reserves of fossil fuels (expressed in tCO2e per/ $ M invested), 
  • A focus is also presented on potential emissions from high-impact fossil fuel reserves (thermal coal, oil sands, oil and shale gas). 

• In regards with carbon risk management, LYXOR presents at the portfolio level a classification of issuers based on their efforts concerning energy initiatives (use of cleaner energy sources, energy consumption management and operational efficiency, carbon reduction targets). 

• In regards with energy producers, LYXOR presents the energy mix of energy producer within the portfolio. The row data used are the company-reported power-generation volume (MWh) by fuel type, where available.

• In regards with the portfolio's exposure to issuers offering environmental solutions, LYXOR presents the exposure to revenues devoted to environmental solutions that contribute to the Sustainable Development Goals (SDGs).

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

specify

          Through the Climate Action 100+, LYXOR seeks to obtain commitment from companies, to provide enhanced corporate disclosure in line with the recommendations of the TCFD.
        

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.

URL/Attachment

URL/Attachment

URL/Attachment

URL/Attachment

URL/Attachment

URL/Attachment

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

URL/Attachment

URL/Attachment

URL/Attachment

02.3. Additional information [Optional].

The reporting on integration of environmental, social and governance (ESG) criteria -Article 173 (D 533-16) of the French Law on the Energy Transition for Green Growth is available on https://www.lyxor.com/en/socially-responsible-investment

 

 


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.

https://www.lyxor.com/conflics-interest-policy

03.3. Additional information. [Optional]

The purpose of this document is to present the management procedure for conflicts of interest, which is implemented within Lyxor to prevent clients' interests from being harmed through a conflict of interest.

In addition, in relation to our voting activities, our voting guidelines are intended to identify the best interest of all clients and principals. LYXOR may have cases of conflicts of interests related to the implementation of its voting policy. Potential cases could include voting of resolutions of companies that are part of the Société Générale Group. As with all our holdings, the general rule in cases for which there may be a conflict of interest is to vote in accordance with the voting policy. 


SG 04. Identifying incidents occurring within portfolios (Private)


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