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Mirova

PRI reporting framework 2020

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » Implementation processes

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
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
100 All three strategies combined
0 No incorporation strategies applied
100%

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

Mirova’s fixed income approach can be described as a conviction-based management combined with an active, medium-term allocation approach, which enables to capture opportunities within economic cycles and attractive valuation.  Security selection is at the heart of the process. We prioritize positive investment such Green and Social Bonds and issuers assisting the development of the Sustainable Development Goals.

Mirova has therefore 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.01.3 and FI 04.03). It combines positive and negative screening, a thematic approach and systematic ESG integration.

Screening : Mirova has developed a comprehensive RI approach that combines positive and negative screenings.

Thematic: Mirova’s search to reconcile positive environmental, social, and financial impacts translates to a major investment in promotion and assistance for sustainability bonds, a key part of its fixed-income strategy, focusing on green, social and sustainability bonds.

Integration :For all bonds, an ESG integration analysis is performed, leading even to the exclusion of certain green, sustainability or social bonds where the sustainability opportunities are considered insufficient or sustainability risks are considered too high.

For more details, see below:

01.3. Additional information [Optional].

Screening : Mirova has developed a comprehensive RI approach that combines positive and negative screenings.

 Screening criteria, whether positive (thematic filter) or negative (ESG filter), are established by Mirova’s in-house RI research department.

In concrete terms, for each issuer or project, the RI research team produces a Sustainability Opinion, which assesses whether the investment is compatible with the UN Sustainable Development Goals. The team’s guiding philosophy is publicly available on Mirova’s website*. The formation of this Sustainability Opinion relies on two main assessments. 

- The Sustainability Opportunities Exposure which assesses the compatibility of the company’s business model with sustainable development themes. The level of exposure is calculated in terms of the 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, regardless of the quality of its business model. It also includes an in-depth analysis of companies’ exposition to severe and repeated controversies (major violations of the UN Global Compact and OECD principles, controversial weapons)

The “Sustainability Opportunities Exposure” is merged with the “Sustainability Risk Review Opinion” to form the overall “Sustainability Opinion”, 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 thus prioritize positive investment such Green and Social Bonds and issuers assisting the development of the Sustainable Development Goals. (See question FI 04.3 for more details).

Thematic: Mirova’s search to reconcile positive environmental, social, and financial impacts translates to a major investment in promotion and assistance for sustainability bonds, a key part of its fixed-income strategy. Debt instruments offer a variety of possibilities for financial innovation in response to sustainable development issues. The most important of these are green and social bonds, which provide an ideal solution for investors seeking to make an impact. These bonds finance projects with the intent of generating positive environmental and/or social impacts. As these bonds ensure a direct link between projects and financing, they provide all issuers with the opportunity to have their low-carbon activities financed by bond investors and to benefit from improved visibility of these projects.

 Since its inception, Mirova has encouraged the development of the green and social bond market through its research, active participation in international market institutions (Green Bond Principles and Climate Bonds Initiative) and French market institutions (TEEC Label, Paris Europlace), regular, constructive dialogue with market players, and, of course, its investment efforts.

 In providing fixed-income solutions either wholly or mostly comprised of investments in green and social bonds, Mirova reinforces this position. In fact, since the creation of the company, the portion of green and social bonds held in Mirova’s portfolios has risen steadily. Today, these bonds represent more than 1,2Bn€, which represents more than 60% of Mirova’s fixed income AUM (worldwide, green and social bonds represent about 0,5% of the total fixed income market), (A1)

Integration: For all bonds, an ESG integration analysis is performed, leading even to the exclusion of certain green, sustainability or social bonds where the sustainability opportunities are considered insufficient or sustainability risks are considered too high. This systematic ESG review is applied to all bonds, including sovereign bonds, for which Mirova developed a specific module in its internal research and analysis methodology.


FI 02. ESG issues and issuer research

02.1. Indicate which ESG factors you systematically research as part of your analysis on issuers.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Environmental data
Social data
Governance data

02.2. Indicate what format your ESG information comes in and where you typically source it

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

Indicate who provides this information  

specify description

          31 ESG indicators public and trustworthy sources (World Bank, OECD, WRO, WRI, BP Energy Statistics, etc.)
        

02.3. Provide a brief description of the ESG information used, highlighting any differences in sources of information across your ESG incorporation strategies.

Mirova's Research is a collaborative process. Interactions between portfolio managers and ESG analysts are constant: they share views and opinions on assets during regular internal committees (e.g. ESG monthly committees, ad hoc meetings for each issuance), and also share a common, proprietary and internal tool “OCTAVE”. This collegial modus operandi fosters cross-teams exchanges and enables them to challenge each other’s opinions.

As regards RI Research, the analysis is conducted by a team comprised of 10 ESG analysts. They draw on the following sources of information:

Publicly available data: corporate annual / sustainable development reports, academic research, NGO reports, press, etc.
Regular exchanges with different stakeholders: issuers, trade unions, NGOs, scientific community (notably through the partnership with Cambridge University), National Contact Points for the OECD Guidelines for Multinational Enterprises.
External research: sell-side analysts (such as CA CIB, Natixis etc.), ESG rating agencies (ISS ESG, Ethix, Carbone 4, Beyond Ratings, etc.).
Specific meetings with Green and Social bonds issuers

These various sources are aggregated based on a proprietary methodology that enables different levels of in-house monitoring depending on the issuer’s weight in Mirova’s portfolio, notably for corporate issuers (Core and standard universes, explained in FI.02.4).

 

02.4. Additional information. [Optional]

A comment on each type of ESG information mentioned above in 02.2 is set forth below:

-Raw ESG Company data: raw ESG data and KPIs are collected by the in-house RI research team, either directly from issuers (sustainable development reports, annual reports, meetings or calls with CSR department or Investor Relations Deparment, etc.) or by proxy through intermediaries such as sell-side analysts or extra-financial ratings agencies. 

-ESG factor analysis: One of the primary roles of Mirova’s RI research team is to further understand  major sustainability issues and transpose them to investment-context, so as to determine to what extent business industries are exposed to risks and/ or opportunities related to sustainability. To this end, the RI analysts regularly perform thematic studies on issues relevant to sustainable development, as well as “Focus papers” that address more specific topics. In order to produce these materials, the RI Research team team relies on:

=> A broad spectrum of sources (among which academic reseach, sell-side analysis and extra-financial ratings agencies, which also produce thematic publications).

-Issuer-level analysis: the sustainability assessment of corporate issuers is performed by the RI research team on the basis of:

Their own investigations, which for the main corporate issuers included in the “Core Universe”* entails meetings with the issuers involved, as well as engagement actions when areas for improvement are identified.
Systematic meetings with Green and Social bonds issuers in order to analyse all the Green and Social Bonds in whichwe are invested
Secondary sources such as the ratings of external research providers.

-Sector-related analysis and ratings: The RI research team undertakes analysis that cover sector-related ESG risks; these analyses notably draw on sectorial analysis from sell-side analysts as well as from extra-financial ratings agencies.

-Country-related analysis or ratings: Mirova’s in-house RI Research team has defined and applies its own methodology to assess the ESG profiles of countries. This proprietary approach is based on 31 ESG indicators obtained from public and trustworthy sources (World Bank, OECD, WRO, WRI, BP Energy Statistics, etc.) Mirova chose these indicators based on how well they represent the different pillars under environment, social and governance. Furthermore, Mirova’s approach places an emphasis on energy & climate-related issues. In addition to the overall “Sustainable Impact Opinion” assigned to each sovereign issuer based on the 31 ESG indicators mentioned above, the RI Research team draws on the expertise of the specialized rating agency “Beyond Ratings” to perform a specific “Energy & Climate Risk Scoring”.

Although ESG analysis is mainly carried out by the in-house research team, the Fixed Income management team is highly knowledgeable in RI and ESG issues. Marc Briand, head of fixed income and portfolio manager, and his team, are frequent speakers on green bond seminars and conferences . They are often present in meetings with issuers when speaking about ESG issues and ask ESG questions themselves. We also hold a meeting once a month whereby the ESG and fixed income team talk about the different ESG issues and portfolio management challenges there are.  A regular update on market liquidity is also published on Mirova's website. This high level of experience in ESG issues enables an optimum ESG Integration in Mirova's fixed income investment processes.

* As regards corporate issuers specifically, the RI research team has implemented two types of coverage regarding sustainability analysis:

Core scope, mostly made up of issuers held in portfolio: good knowledge of the issuer (or event extensive for the main holdings), regular monitoring/updates and validation/review of ISS ESG's analyses on a quarterly basis (ISS ESG is Mirova’s main external research partner), meetings with companies, etc.
Standard scope, i.e. all other corporate issuers: the analysis is fully delegated to ISS ESG.

 

 


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.

03.3. Additional information. [Optional]

To ensure the robustness of the ESG analysis, Mirova has built up strong RI Research capacity: its RI Research team has developed proprietary Sustainability Assessment methodologies suited to each category of issuers.

The RI Research team conducts its own investigations. The issuers included in this “Core Universe” (issuers held in portfolios), as well as sustainability bond issuers, are contacted to better understand their practices and discuss areas for improvement, as part of Mirova’s engagement approach.

To ensure a broad coverage, Mirova also relies on various providers carefully selected for the quality of their ESG analysis.  ISS ESG and Beyond ratings are the main research partners, respectively for corporate and sovereigns issuers. The ESG analysis carried out on issuers held in Mirova’s portfolio is systematically undertaken or validated internally.

The frequency of updates varies depending on the importance of the issuer in Mirova’s portfolios. Each Green and Social bond ‘s analysis is updated on an annual basis.

Periodic reviews of the quality of the research are also carried out by third-parties (EY in 2014 and 2015;  EY annual review of investment processes for Mirovas’ SRI and TEEC labels), 2018 French market authorities (AMF) SPOT audit, regular internal audits (BPCE, Natixis IM). 


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