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PRI reporting framework 2020

Export Public Responses

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

(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
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

Mirova has developed a comprehensive RI approach that combines positive and negative screenings. The purpose is to primarily focus RI Research on the most appropriate environmental, social and structural innovations so that these may form a basis of investment decisions (thematic and green bond screening), but without disregarding the need to control ESG risks.

To this end, Mirova has defined proprietary ESG analysis methodologies suited to each category of issuers, so as to screen the investment universes in a relevant way (for further details, please refer to FI.04.03).

These ESG analysis methodologies are established and applied by Mirova’s in-house RI analysts, who also draw on various external providers and resources (detailed in FI.2).

There is no pre-defined frequency to review the RI criteria. The idea generation process and screening criteria, and generally speaking the entire process of extra-financial research, undergo constant improvement and refinement while offering continuity. 

Should a significant change of RI approach or criteria occur that might affect the investment process, the fund’s prospectus would be updated. In such a case, changes would be notified to the CSSF, the Luxemburg sucurities regulator, and /or to  AMF, the French securities regulator, and investors would be properly informed.

04.3. Additional information. [Optional]

Additional information about Mirova’s screening approaches,
suited to each category of issuers


A/ a positive screenings

-       Corporate issuers and SSA (supranational organizations / agencies / local authorities):

a growing exposure to sustainable bonds, issued by corporate issuers,  Supranational organizations or government agencies (a detailed explanation of how Mirova defines the eligible universe is provided in questions FI.8 to FI.10) 

a selection of well-rated issuers in portfolios: For each corporate issuer, the RI research team produces a Sustainability Opinion, which assesses whether the investment is compatible with the UN Sustainable Development Goals. This Sustainability Opinion, which is obtained by merging a “Sustainability Opportunity exposure” with a “Sustainability Risk Review”, is defined on a 5-level scale: “Negative”, “Risk”, “Neutral”, “Positive” and “Committed”. Only issuers rated “Neutral”, “Positive” or “Committed” are eligible for investment at Mirova.

we prioritize Green and Social bonds compared to conventional bonds for an equivalent return

-       Corporate issuers specifically:

An additional focus on sustainability-leaders and Positive Contributors. It consists in selecting primarily corporate issuers that have the ability to perform over the long term through business models that address Sustainable Development Goals. These issues are classified on 8 macro-sectors* enabling the identification of investment opportunities along the entire value chain and across all sectors of activity. The RI Research assesses the  “Sustainability Opportunity exposure” of each corporate issuer, after analysing to what extent their business models fit with one or several of the above-mentioned themes.

Overall, we prioritize green bonds issuers and issuers rated as “committed” or “positive” by the ESG research team.


B/ negative screening (including norms-based screening)

-       Corporate issuers and SSA (supranational organizations / agencies / local authorities)**: issuers that are badly rated for an ESG reason are excluded from Mirova's investment universes, and are therefore not allowed in portfolios (i.e. "sustainability opinions" below neutral: risk or negative). In particular, issuers exposed to severe and repeated violations of the UN Global Compact and OECD principles are badly rated and therefore excluded..

-       Non-financial corporate issuers specifically: As a result of its absolute ESG analysis that differentiates between sectors in order to favour those with positive environmental and/or social externalities (and not for dogmatic reasons), Mirova does not invest in coal, in tobacco, in military industry nor in oil E&P. Controversial weapons (antipersonnel mines and cluster bombs) are also systematically excluded.

-       SSA (Sovereign Issuers specifically): based on 31 ESG indicators, the RI Research team assigns to each country a Sustainable Impact Opinion on a 5-level scale: “negative”, “risk”, “neutral”, “positive” and “committed”. Countries that have a negative score on Governance Pillar automatically obtain a negative overall Sustainable Impact Opinion and are therefore excluded from the investment universe. Countries that have an Environmental or Social Pillar assessed as negative obtain a “Risk” overall opinion and are not eligible. Only sovereign issuers with a “neutral”, “positive” and “committed” overall Sustainable Impact Opinion can be held in Mirova’s portfolios.


*Energy, mobility, resources, consumption, buildings and cities, health, finance, information and communication technologies.

** Supranational organizations, government agencies and local authorities, are assessed as corporate issuers as long as they have a distinct governance from their country

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
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

06.2. Additional information. [Optional]

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 issuers monitor news and alarms so as to continually ensure the consistency of their ratings with actual practices (the monitoring of issuers and updates of sustainability opinions are previously explained in questions FI.02 to FI.04) -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 issuer and ensure that none rated below "neutral" is present in the portfolio continuously.

For the latter level,  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, any breach that does occur (for example, due to market action) 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 (a sister company of Mirova and 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 listed assets. The Mirova Risks Committee also reviews these procedures.
- 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 Investment Managers, and the quality and relevance of Mirova's internal control mechanism is reviewed 3 times a year by the Risk and Compliance Committee
*Internal audits of fund holdings are undertaken regularly, but it is to be noted that such controls are made by Risk Constraints and Operations Team (RCO), and not by the internal control team which is rather in charge of monitoring the application of internal processes.
**The in-house Research team relies on several kinds of sources described in details in FI.02