For each company, Mirova’s RI research team produces a “Sustainability Opinion”, which assesses to what extent the investment is compatible with the UN Sustainable Development Goals. The formation of this “Sustainability Opinion” relies on two main assessments. 

-The “Sustainability Opportunities Exposure”, which evaluates the compatibility of the company’s business model with sustainable development themes. The level of exposure is calculated in terms of environmental or social benefits presented by an activity, in comparison to a business-as-usual scenario.
-The “Sustainability Risks Review”, which evaluates how a company addresses environmental and social challenges, as well as potential involvement in controversies, regardless of the quality of its business model. 

The research Committee and the buy list committee integrate non-RI research members and enable Mirova to challenge the ESG ratings applied to  companies. A CRD alert is transmitted to portfolio managers through the IT system to prevent any buying of an issuer rated as "risk" or "negative". 

In order to have a high level of information and a broad coverage of companies related to sustainability, Mirova relies on various providers regarding sustainability analysis, among which ISS ESG, its main ESG Research partner. ISS ESG, a sustainability rating agency with more than 50 analysts dedicated to sustainability issues, works hand in hand with Mirova to cover an extensive universe. Considering this close partnership:

-ISS ESG applies Mirova’s RI research methodolology ;
-Mirova’s RI Research team regularly challenges the robustness of the analysis carried out by ISS ESG’s analysts ;
-On Core Universe*, Mirova’s RI Research teams reviews and modifies ISS ESG’s analyses on a quarterly basis. Mirova’s RI Research teams set up meetings with companies to reach a better understanding of their ESG practices, verify or further investigate specific aspects and make suggestions for improvement if necessary, as part of Mirova’s engagement approach. Companies are therefore sometimes given the opportunity to review ESG research on them and to correct potential inaccuracies during the dialogue undertaken.

As regards how often the ESG analyses are updated, for its Core Universe* the RI Research team follows the newsflow on issuers (on a real time basis for top holdings) so as to ensure that the Sustainability Opinion continually corresponds to companies’ the actual practices. The RI Research team carries out three main actions:

- A daily review of news feeds and a comment on each relevant news item every week.

- A quarterly review of ISS ESG’s updates (ISS ESG is Mirova’s main external research partner)

- A review after each company meeting.

For the Standard scope**,  ISS ESG’s analyses are annually updated and controversies and other important information (mergers etc.) are integrated in ISS ESG’s own tools as soon as their rating update is finalised. Each quarter, newly updated information is integrated in the data delivered to Mirova.

A periodic review of the quality of the research is also carried out by third parties:

- EY has conducted an audit on the robustness of Mirova’s ESG research processes in June 2014 (with a review in 2015)
- In the framework of the SRI label, that has been awarded to 21 Mirova’s funds, and of the and TEEC/ green label, awarded to 3 strategies and 5 funds,  the investment process that includes Mirova’s ESG research have been audited by external certificators (EY ).
- Very regular audits are carried out by the General Inspection Department of BPCE Group on investment processes.  

- An audit was carried out by the French Market Authority on our SRI processes in 2018. 

* mostly made up of companies held in portfolio

** All other companies

Mirova is a Core RI player. As a consequence, ESG criteria are at the heart of its investment processes. The ESG guidelines are formalized and their application is strictly monitored.

To ensure the follow-up of Environmental, Social and Governance criteria in Mirova’s RI strategies, two levels of monitoring are in place:

-At the level of the RI Research team: the analysts responsible for assessing companies monitor news and alarms so as to continually ensure the consistency of their ratings with companies’ actual practices (the monitoring of companies and updates of sustainability opinions are previously explained in question LEI.05)
-At the level of the Risks Constraints and Operations teams: they monitor not only the regulatory and financial constraints of portfolios, but also their minimum level of ESG quality. Among their tools, therefore, these teams have access to the ESG ratings of each company and ensure that none rated below “neutral” is present in the portfolio continuously.

Mirova also holds regularly a dedicated Risks management Committee. 

 In addition, Mirova draws on Natixis IM’s (its parent-company) strong risk management organisation to ensure that fund screening criteria are not breached, among which ESG constraints. To this end, the process described below is strictly applied.

Considerable attention is paid to monitor compliance with established guidelines. Given the in-depth risk monitoring and the ability to pre-test trades both for consistency with the model portfolio and for guideline compliance, the potential for breaches based on portfolio management activity should be low. Further, in case a breach actually occurred (for example, due to market action), it can be quickly discovered and resolved given the systems that actively monitor guideline compliance. 

Guardian, dedicated software 

Guardian leads both pre-trade and post-trade controls and provides a daily automated audit trail. All portfolio constraints are input into the Guardian dedicated software by the Risk Constraints and Operations Team (RCO) of the Legal, Monitoring (Compliance and Internal Control) and Risk Department of Ostrum AM (another affiliate of NIM). Guardian (Compliance module of CRD) is linked to the Charles River Development order management system and to the Apollo central record keeping system for portfolio positions, which is updated daily.

The RCO Team develops and maintains pre-trade controls for the use of portfolio managers before submitting trades. These controls are performed in real time, before a broker or counterparty has been contacted by a dealer. These pre-trade controls concern mainly eligibility and investment constraint calculations, and are intended to prevent breaches. Pre-trade compliance strengthens the asset management process by reducing risk of late corrections and end-of-day non-compliance.

In addition the RCO Team uses Guardian to perform post-trade controls. Any breaches are reviewed daily and brought to the portfolio manager for resolution. There is a formal escalation procedure if the breach is not resolved in less than 2 days. Reports on breaches are sent twice each month to the heads of investment departments and the heads of Legal, Monitoring (Compliance and Internal Control) and Risk Department.

Control mechanisms operate at three distinct levels.

-First level: controls at front office level – portfolio managers

Operational business lines are responsible for these front-level controls through self-regulation and the policies stipulated in the written procedures. Risk management is part of the portfolio managers’ investment process. They use an in-house developed tool for pre-trade simulations and controls. These ex-ante controls include regulatory, contractual and internal constraints that portfolio managers take into account while constructing and managing a portfolio. The Middle Officers are in charge of the first analysis. Through standardized consistency checks, Middle Officers make sure the breach is valid and raise it, through Guardian, to the portfolio manager for action

-Second level: controls at risk management team level

The second level of controls is led by the RCO Team, who monitors constraints linked to portfolios’ financial management (intelligence and validation, exhaustiveness, effective control, adjustment procedure, audit trails, reporting). Controls cover either the prospectus specifications when relevant for funds, or contractual constraints for mandates including specific investment guidelines, as well as regulatory requirements. It finally implements ex-ante constraint controls on portfolios.

The initial analysis is handled by the middle office. Through standardized consistency checks, this department checks that the breach is valid and raises it, through Guardian, to the portfolio manager for action. If after two alerts, action is not taken, risk managers take over from the middle office until the exception is corrected.

-Third level of control, called regular controls

Specific audits can be conducted by Natixis IM, and the quality and relevance of Mirova’s internal control mechanism is reviewed 3 times a year by the Risk and Compliance Committee.

Mirova has a core belief: The global economic environment is facing 4 major transitions – environmental, social, technological and governance- which are accelerating a paradigm shift towards a more sustainable development model. Climate change, rising inequality, technological disruption and governance crisis are examples of the challenges that the economic leaders have to face, and which are calling for a broader response from the  business world to achieve a sustainable growth as defined by the UN Sustainable Development Goals.

In this context, innovation and sustainability are becoming the main levers for economic, environmental and social value creation. The companies that will be able to provide sustainable and or innovative solutions, while appropriately managing their ESG, will benefit from a real competitive advantage. Our investment approach is primarily based on that conviction and combines the sustainability and financial dimensions of investing with the objective to allocate financial capital with a net positive impact on society and benefit from returns of companies that should deliver better than average performance.

RI research is therefore at the heart of its investment process. It aims at further understanding sustainability issues* and transpose them to investment-context, and then determine to what extent business industries are exposed to risks and/ or opportunities related to sustainability.

In practical terms, this thematic / multi-thematic approach entails selecting companies that are ‘tomorrow’s winners’, i.e. that have the ability to perform over the long run via business models that fully integrate the challenges of sustainable economic development. These issues are classified around 8 macro-sectors enabling the identification of investment opportunities along the entire value chain and across all sectors of activity. Mirova’s PMs can either :

-cover all these themes (or several) in multi-thematic funds, and therefore combine environmental and social issues:

e.g. Mirova Global Sustainable Equity Fund *** ; Mirova Europe Sustainable Equity Fund, Mirova Euro Sustainable Equity Fund, etc. ****

-or focus on 1 or 2 theme(s) in thematic funds:

environmental theme: e.g. Mirova Europe Environmental Equity Fund, etc.
social theme: e.g. Insertion Emplois Dynamique, which targets companies that are the most likely to create employment over 3-year cycles.

For further details about the themes addressed by Mirova’s product range, please refer to the section “Strategy and Governance”, Question SG.15.

* Climate stability change, Healthy Ecosystems, resources security,  Basic Needs, Decent work, Wellbeing,
** Energy, mobility, resources, sustainable, consumption, buildings and cities, health, finance, information and communication technologies

*** Mirova Global Sustainable Equity Fund is a sub-fund of the Luxembourg SICAV Mirova Funds, approved by the Luxembourg Commission for the Supervision of the Financial sector (the "CSSF"). Natixis Investment Management International is the management company and has deleguated financial management to Mirova US.

**** Mirova Europe Sustainable Equity Fund and Mirova Euro Sustainable Equity Fund are sub-funds of the Luxembourg SICAV Mirova Funds, approved by the Luxembourg Commission for the Supervision of the Financial sector (the "CSSF"). Natixis Investment Management International is the management company and has deleguated financial management to Mirova.
 

Mirova is a pure player in the RI market. Considering this positioning, the incorporation of ESG in its investment processes forms an integral part of its business model.

As a consequence, all its funds systematically take into account E, S and G criteria.

Environmental and social factors are analysed for all funds on a sector-specific basis, either through a multi-thematic approach or a thematic one (for more details, please refer to LEI.07 or SG.15) on the following basis:

- A Risk / Opportunity Approach

- Taking advantage of opportunities ; .
- Managing Risks ;
- Targeted Issues
- A Life Cycle Analysis
- A Qualitative and Absolute Assessment

Governance issues are analysed at two levels:

- the sustainability governance analysis evaluates how environmental and social performance are managed by the issuer; this is performed directly by the RI research team;

- the corporate governance analysis evaluates how the economic performance is managed by the issuer; this is performed directly by PMs.

The processes in place to ensure ESG integration is based on robust analysis are the same than those described for the screening (please refer to LEI.5 for further information).

In addition, optimum ESG Integration is fostered by constant interactions between the RI Research team and the portfolio managers:

- not only do they share the same offices, they take part in several common internal meetings (Conviction meetings, Thematic clusters, etc.)

- they hold open meetings where anyone can attend (with company management, external strategists/analysts, etc.)

- together, they perform combined financial & extra-financial stock-notes, with a standard section dedicated to sustainability opinion.

- they share a common, proprietary and internal tool: OCTAVE (Online Collaborative Tool for Analysis, Vote and Engagement).

This collaborative modus operand fosters trust and idea sharing.

Mirova systematically captures how ESG information and research was incorporated into investment decisions to ensure that all the companies included in its portfolios are compliant with its high standard ESG and thematic requirements. Mirova is fully transparent with regard to this ESG quality commitment and discloses publicly the breakdown of its portfolios in terms of “Sustainability Opinion” in the funds’ monthly factsheets, available on its website: http://www.mirova.com/en-UK/p/our-funds.

The equity investment team has a conviction-driven, stock picking approach based on a bottom-up investment process. ESG issues are therefore mostly taken into account at the stock-selection and portfolio construction levels.

Achieving the SDGs requires taking two different dimensions into account that often go together.

- Taking advantage of opportunities

- Managing Risks:

This analysis structure gives equal importance to opportunities and risks. It is the primary prism through which we analyse sustainable development issues.

Targeted Issues

Our risk/opportunity analysis focuses on the elements most likely to have a tangible impact on the assets studied and on society in general. Additionally, the issues that economic agents face are very different depending on the sector, and can even vary within the same sector.

A Life Cycle Analysis

In order to identify the issues that could impact an asset, the analysis of environmental and social issues must consider the entire life cycle of products and services, from raw material extraction to end-of-life.

A Qualitative and Absolute Assessment

The primary result of these analyses is an overall qualitative opinion on a five-tier scale. This score demonstrates how the asset performs in terms of sustainable development goals.