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Sycomore Asset Management

PRI reporting framework 2020

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ESG incorporation in actively managed fixed income

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.
Corporate (non-financial)
0 Screening alone
0 Thematic alone
37 Integration alone
56 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
7 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.

Screening + Integration + Thematic (7% Fixed Income AUM)

Sycomore Next Generation (SNG) launched in 2019 is an SRI-labelled balanced fund. 

SNG's approach consists in filtering the universe for the best SPICE scores (rating above 2.5 out of 5) and selecting stocks and bonds based on 3 themes: 

- Better environment 

- Better life 

- Better work 

Screening + integration (56% Fixed Income AUM)

Sycomore Selection Credit (SSC) is Sycomore AM's only corporate-bond SRI-labelled fund.

SSC's SRI approach consists in filtering the universe to exclude companies that are too risky on 6 key criteria:
1. Environmental risk 
2. Quality of social climate 
3. Reputation risk 
4. Financial communication risk 
5. Accounting risk 
6. Bondholder risk 
An issuer that obtains a rating below 2 out of 5 on one of these criteria (or on the overall ESG score), will be excluded from the investable universe. This approach screens out over 30% of the initial universe.

Integration (45% Fixed Income AUM)

For the other internally managed fixed-income assets (held within flexible, multi-asset classes vehicles) we apply the same SPICE integration process as for listed equities.

01.3. Additional information [Optional].


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
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  

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

We collect data first and foremost through company annual and sustainability reports and one-to-one meetings with management/sustainability/human resources teams. We also use third-party information such as publications from brokers, calls with various experts, NGO publications, newspapers, social networks, etc.

For the two following specific ESG issues, that are controversy analysis and involvment in controversial activities, and evaluation of products, we also use data by ESG research providers. These are used as raw data and support information, that are integrated by our in-house analysts following our own analysis framework and ESG integration philosophy. 

We also use Trucost environmental data for reporting purposes.

The main difference between the ESG analysis for fixed-income and listed equity is that access to ESG information is often more difficult for non-listed bond issuers. 

02.4. Additional information. [Optional]


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

specify description

          The robustness of our ESG analysis is also ensured through meetings with companies, during which issuers can be given the opportunity to review our research.
        

03.2. Describe how your ESG information or analysis is shared among your investment team.

03.3. Additional information. [Optional]


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
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

Sycomore Next Generation (SNG) launched in 2019 is an SRI-labelled balanced fund. 

SNG's approach consists in filtering the universe for the best SPICE scores (rating above 2.5 out of 5) and selecting stocks and bonds based on 3 themes: 

-Better environment

-Better life

-Better work 

Sycomore Selection Credit (SSC) is Sycomore AM's corporate-bond SRI-labelled fund.

SSC excludes companies that are too risky on 6 key criteria:
1. Environmental risk (upcoming regulations, potential fines, litigation provisions, etc.)
2. Quality of social climate (known social conflicts, abnormally high rates of turnover or absenteeism, etc.)
3. Reputation risk (controversies, activities in highly-sensitive areas or businesses, etc.)
4. Financial communication risk (results vs guidance history, openness and availability to meet with investors, etc.)
5. Accounting risk (independence of auditors, complicated and obscure accounting, etc.)
6. Bondholder risk (aggressive leverage or share buyback, debt financing of dividend, etc.)

The remaining assets invested in corporate bonds integrate ESG criteria but are not SRI-labelled.

Finally, the following exclusion policies apply:
1. Exclusion of all controversial weapons for all investments
In line with the Oslo and Ottawa conventions, Sycomore AM excludes any investment in controversial weapons.
2. Exclusion policy for SRI funds
Please see LEI 04.1.

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

The environmental risk criteria, based on physical risks exposure screens out of the investable universe most oil companies, such as Total for example.  

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

We recently declined to buy a bond issued by a Swedish credit management company. This decision was based on the "reputational risk" criteria in the client section of our analysis: we considered the company was exposed to significant risk because of its credit collection practices which were not harmonized across all countries and notably were considered as "agressive" in certain Southern and Eastern European countries. 

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

As the company Wirecard faced serious allegations of accounting fraud, we excluded it from the investable universe. 

05.2. Additional information.


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

06.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 07. Thematic investing - overview

07.1. Indicate what proportion of your thematic investments are (totalling up to 100%):

Specify

          Bonds in the Sycomore Next Generation fund are chosen based on the environmental, societal or human capital contribution of the issuer.
        
7 %

07.2. Describe your organisation’s approach to thematic fixed income investing

Screening + Integration + Thematic 

Sycomore Next Generation (SNG) launched in 2019 is an SRI labelled balanced fund. 

SNG's approach consists in filtering the universe for the best SPICE scores (rating above 2.5 out of 5) and selecting stocks and bonds based on 3 themes: 

- Better environment (Net Environmental Contribution)

- Better life (societal contribution)

- Better work (human capital contribution)

07.3. Additional information [OPTIONAL]


FI 08. Thematic investing - themed bond processes

08.1. Indicate whether you encourage transparency and disclosure relating to the issuance of themed bonds as per the Green Bonds Principles, Social Bond Principles, or Sustainability Bond Guidelines..

          Issuers not disbursing bond proceeds as described in the offering documents would be rated negatively in our SPICE model under our capital allocation criteria.
        

08.2. Describe the actions you take when issuers do not disburse bond proceeds as described in the offering documents.

Even though our process is based on screening at the issuer level rather than at the bond level, we value corporate integrity. Therefore, issuers not disbursing bond proceeds as described in the offering documents would be rated negatively in our SPICE model under our capital allocation criteria

08.3. Additional information. [Optional]


FI 09. Thematic investing - assessing impact

09.1. Indicate how you assess the environmental or social impact of your thematic investments.

09.2. Additional information. [Optional]

Every year we publish Art.173 reports for our SRI Bond fund Sycomore Selection Credit (Sycomore Next Generation being a new fund, the 2019 report is not yet available). These include data on the gender equality, human rights and environmental impact profile of the portfolio, as well as exemples of societal impact of selected holdings. The information is available in our website: https://en.sycomore-am.com/5d7f87ce-RAPPORT_SSC_UK_2019.pdf


(C) Implementation: Integration

FI 10. Integration overview

10.1. Describe your approach to integrating ESG into traditional financial analysis.

Sycomore Sélection Crédit and Sycomore Next generation's ESG integration process is described in details in the following document : https://www.sycomore-am.com/5d3873a0-Sycomore_AM_-_Fonds_Next_Gen_et_SSC_-_Code_de_transparence_AFGFIREUROSIF....pdf

10.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

Corporate (non-financial)

Our ESG integration process is the same for corporate (non-financial) and financial fixed income investments. 
 

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
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
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.

Corporate (non-financial)

Sycomore Sélection Crédit and Sycomore Next Generation's ESG integration process is described in details in the following document: 

https://www.sycomore-am.com/5d3873a0-Sycomore_AM_-_Fonds_Next_Gen_et_SSC_-_Code_de_transparence_AFGFIREUROSIF....pdf

 

 

12.3. Additional information.[OPTIONAL]


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