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Sycomore Asset Management

PRI reporting framework 2020

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ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation carries out scenario analysis and/or modelling, and if it does, provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe Sycomore Asset Management relies on existing publicly-available climate-related scenarios to assess the likelyhood of transition and physical risks. The scenario analysis is performed at the investee company level as for now.

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

          Investment analysis, Asset valuation and Stock picking
        

13.3. Additional information. [OPTIONAL]

Scenarios are also the basis for assessing the criteria named "Alignment and Trajectory" with Transition risk and for assessing the criteria "Physical risks" which are both integrated in the Environment pillar. 

2°C and below scenarios have been integrating in the design of the Net Environmental Contribution (NEC) methodology such as for the energy-related frameworks (fuel, heat and electricity) in which an over-2°C budget has been modeled and apply to the various sources of energy by nature and by type of extraction. The NEC methodology is publicly available through the NEC initiative: www.nec-initiative.org

Climate, energy and economic scenarios have also motivated several criteria of our SRI exclusion policy that flags sectors and industries where the environmental-risk exposure is too high (e.g. coal extraction and coal-based energy production, non conventional oil&gas extraction).


SG 13 CC.

13.4 CC. Describe how your organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, its results, and any future plans.

Describe

Sycomore Asset Management relies on existing publicly-available climate-related scenarios to assess the likelihood of transition and physical risks. Two major sources serve as a basis for our assessments: IEA scenarios (Stated Policies Scenario, Sustainable Development Scenario and Current Policies Scenario) for transition risk and IPCC scenarios for physical risks (RCP 8.5, RCP 6.0, RCP 4.5 and RCP 2.6).

2°C and below climate scenarios flag technologies or activities with high-GHG intensities that are not compatible with a transition toward a low-carbon economy nor an environmentally resilient world. 

We use climate scenarios for the following initial assessment:

1. Bottom-up assessment of transition risk:

  • a. Each potential investment review includes a Net Environmental Contribution (NEC) assessment. 

Climate-related scenarios are integrated into a more comprehensive methodology: the NEC. Based on the outcomes of a four-year research program led by Sycomore AM, the Net Environmental Contribution (NEC) metric has been developed and applied to more than 1,300 companies in our investment universe.

The NEC measures the degree of contribution to the energy and environmental transition of any product, service, company, portfolio or index. It is an approach based on scientific physical data from life-cycle analysis by function, sourced from academic tools, third-party studies and branch initiatives. The approach is multi-criteria and goes “beyond carbon” by integrating 5 key environmental challenges: climate change, biodiversity, air quality, water and resources/waste. The outcome is a single figure per company, based on its different underlying activities, ranging from -100% for the most environmentally damaging activities to +100% for environmental solutions clearly aligned with a low-carbon and environmentally resilient world. The 0% point is given for the average environmental impact of the function that the given activity is trying to fulfill. 

The NEC is a solid proxy for transition risk and an insightful measurement of companies' contribution to the environmental transition. It is used as part of the transition risk assessment, for investment decisions and as a reporting metric for Sycomore AM.

Scenario analysis helps us build our Net Environmental Contribution (NEC) frameworks and assessing positively and negatively contributing activites, such as: building materials (e.g. cement activities have a NEC of -50%), mobility (e.g. air freight has a NEC of -100% and air travel of -60%), energy (electricity generation from coal has a NEC of -100%). 

  • b. Each potential investment review includes an assessment of the "Trajectory & alignment" criteria

This criteria covers the scenario analysis and analyses the alignment to a 2°C or lower future. It is based on various scenarios and publicly available tools (such as SBTi, TPI, PACTA, CDP, FAIRR) and private initiative (SB2A methodology based on SDA) as well as on company disclosure. The "Tranectory & Alignment" assessment also encompasses other environmental objectives.

  • 2. Bottom-up assessment of physical risk: Each potential investment review includes an Environment pillar review in our SPICE model, which includes mid- and long-term risks related to climate change and other environmental challenges. It includes LT transition risks flagged by scenarios as well as physical risks that could materialize over the long-term.

 

Describe

1. Our SRI exclusion policy (applicable to all SRI-labelled funds) excludes energy generation that is not compatible with 2°C and below climate scenarios, such as that based on coal.

2. Scenario analysis, as part of underlying investment analysis through: a. the NEC methodology, b. the "Alignment & Trajectory" criteria, c. the physical risks criteria and as part of the financial model through the Environment pillar which is part of the SPICE rating which itself impacts asset valuation in our SycoValo tools.

3. The NEC is a selection criteria for three of our SRI funds, Sycomore Eco Solutions, Sycomore Selection Responsable, Sycomore Next Generation.

4. The NEC is a reporting metric for all our open funds. Monthly reporting are available on our website and disclose the NEC of all our portfolios and their benchmarks' based on underlying holdings. We also anually disclose Sycomore AM's NEC. The NEC feeds our reflexion around company-wide ambitions and trajectory.

Describe

Climate-related scenario are used at various levels for active ownership:

  • Indirectly as 2°C and below scenarios are accounted for in the NEC methodology and we engage with companies based on NEC results.
  • Indirectly into the physcial risks assessment as different scenarios provide different levels of extreme and chronic risks for operations, supply chains and end-markets.
  • Directly with the "Trajectory & Alignment" criteria since scenarios are the basis of the assessment which is key for engagement and could also impact the exercise of voting rights.
  • Directly in our dialogue with companies within some sectors or industries such as energy, power, mobility, steel and cement, the climate-related scenarios can be applied and compared with companies GHG performances and objectives.

13.5 CC. Indicate who uses this analysis.

13.6 CC. Indicate whether your organisation has evaluated the potential impact of climate-related risks, beyond the investment time horizon, on its investment strategy.

Please explain the rationale

As climate-risks depend on many interrelated factors, it is very difficult to model long-term comprehensive impact assessments that would provide insigthful information. Nonetheless, the long-term horizon and the 1.5°C and 2°C scenarios provide us with a vision for the long-term targetted economy that is useful for engagement and trajectory anticipation.

The NEC (Net Environmental Contribution) is computed every month for all open-ended funds and every year for the whole Sycomore AM's AuM in order to understand the potential impact of transition risks for each fund and as a whole for the company.

The results are publicly available in fund-by-fund monthly reportings and on "Sycoway as an investor" reports (annual responsible investment reports) for futher analysis at the fund level and at the company level.

It provides the company with a mid-to-long term view beyond the investment horizon of most funds. It is also used as a fact for exclusion policies and for the implementation of company's targets for environmental contribution.

 

13.7 CC. Indicate whether a range of climate scenarios is used.

13.8 CC. Indicate the climate scenarios your organisation uses.

Provider
Scenario used
IEA
IEA
IEA
IEA
IEA
IRENA
Greenpeace
Institute for Sustainable Development
Bloomberg
IPCC
IPCC
IPCC
IPCC
Other

Other (1) please specify:

          PACTA underlying scenarios
        
Other

Other (2) please specify:

          TPI underlying scenarios
        
Other

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

other description (1)

          Other social and environmental challenges: rising inequalities, gender equality, poverty, working conditions, human rights, digitalisation, urbanisation, biodiversity damages, water pollution and scarcity, air quality
        

14.2. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

Specify the AUM invested in low carbon and climate resilient portfolios, funds, strategies or asset classes.

Total AUM
trillions billions millions thousands hundreds
Currency
Assets in USD
trillions billions millions thousands hundreds

Specify the framework or taxonomy used.

French governmental Green Label: Greenfin (ex Label TEEC)

Indicator developped internally and now available at https://nec-initiative.org/: Net Environmental Contribution (NEC)

other description

          Development and implementation of the Net Environmental Contribution (NEC) to measure alignment with and contribution to the environmental transition.
        

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

other description

          Developed an environmental contribution metric (NEC) taking into account climate, water, biodiversity, resources and air 
Explorating future temperature forecast at a stock and portfolio level
        

14.4. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

NEC - full methodology available here: www.nec-initiave.org - 15 frameworks that cover most of the economic activities and provide industry-specific environmental analysis.

14.5. Additional information [Optional]

In 2019, the NEC (Net Environmental Contribution) became public through the NEC initiative, an open-source platform. Our historical partners I Care & Consult and Quantis are founding partners of the initiaitve together with Sycomore AM.

For more information, please see: www.nec-initiative.org


SG 14 CC.

14.6 CC. Provide further details on the key metric(s) used to assess climate-related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Climate-related targets
          Assess climate-related risk and opportunities and Engage with companies
        
          according to the relevant metric for the industry and business
        
          LCA approach whenever possible, scope 1 and 2 only when relevant, scope 3 only when relevant
        
Total carbon emissions
          Support the climate change component for the NEC
        
          functional units
        
          LCA approach
        
Carbon intensity
          Support the climate change component for the NEC
        
          functional units
        
          LCA approach
        
Exposure to carbon-related assets
          Monitor exposure to assets at risk under a low carbon transition scenario and monitor our net contribution to the environmental transition
        
          % of exposure and % of revenues
        
          Based on the Greenfin label eco-activites taxonomy and based on the EU taxonomy
        

14.7 CC. Describe in further detail the key targets.

Target type
Baseline year
Target year
Description
Attachments
          
        
          
        
          
        

          
        
          
        
          
        

          
        
          
        
          
        

          
        
          
        
          
        

          
        
          
        
          
        

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risk management processes used for identifying, assessing and managing climate-related risks.

Please describe

We factor climate-related risks and strategies into our investment strategies or products.

Sycomore AM has publicly disclosed its Natural Capital Strategy avalaible here: https://en.sycomore-am.com/5b34f956-Natural_Capital_Strategy_2018.pdf that provides an overview of the integration of climate-related risks into overall risk management.

Since 2015, Sycomore AM has invested a lot of time and resources in improving the way climate issues are integrated to the SPICE analysis model for any kind of activity. Climate is one of the 5 issues systematically reviewed in the Environment pillar and is also assessed within the Investor pillar as a component of companies‘ governance and business models. The SPICE analysis model now includes the specificities of article 173 and the recommendations issued by the TCFD, and in particular the following:

  • The risks associated with the transition towards a low-carbon economy or transition risk, and broadly speaking, the issuer’s strategic alignment with the 2°objective: these risks are systematically quantified using the Net Environmental Contribution (NEC) (more detail on question SG14.5) and the "Trajectory & Alignment" criteria are then integrated into the Environment pillar;
  • The exposure to the physical consequences of global warming or physical risks: these are monitored in the Environment pillar, under the dedicated criteria that have recently evolve to better capture this risk.

The environmental risk and opporunities assessment is completed in our SPICE fundamental analysis model which directly impacts asset valuation and risk management.

The NEC is a selection criteria for three of our SRI funds: Sycomore Eco Solutions, Sycomore Selection Responsable and Sycomore Next Generation, and is a reporting metric for all our open funds. Compliance is monitoring that NEC-related rules are fulfilled. Monthly reporting are available on our website and disclose the portfolios and indexes NEC based on holdings.

The NEC is also calculated on Sycomore AM's aggregated holdings and is annually disclosed and reviewed by the steering committee as part of the overall environmental risk assessment and contribution to the environmental transition.

In 2018, we have pursued some research with the risk management team to explore the links between NEC, risk and performances that have been selected for the Financial Risks International Forum 2019. Since then, the risk management team is involved as a key stakeholder in integrating and monitoring the climate / environmental transition risk and as been instrumental on many projects in 2019 regarding a deeper and more systematic intergation into our tools.

14.9 CC. Indicate whether your organisation, and/or external investment manager or service providers acting on your behalf, undertake active ownership activities to encourage TCFD adoption.

Please describe

The NEC calculation provides us with relevant information to engage with companies on the environmental risks embedded in their business model. The dialogue and engagement may also rely on the EU taxonomy criteria and trajectory assessments.

All these 3 criteria support investment professional in pointing out the material and biggest environmental challenges a company faces over its whole value chain and the full LCA of the product and services it provides. It also higlights what are the major environmental issues (i.e. Climate, water, biodiversity, resources/waste or/and air quality).


SG 15. Allocation of assets to environmental and social themed areas

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

17 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

2.2 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Sycomore AM invests specifically in this thematic area through Sycomore Eco Solutions. We have developed a proprietary environmental metric to assess companies' contributions to the ecological and energy transition (Net Environmental Contribution), which is integrated in the investment process of this fund. 

NB: The % of AUM is an estimate based on the average exposition of the fund Sycomore Eco Solutions to companies contributing to energy efficiency or clean technologies. 

Asset class invested

1.1 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Sycomore AM invests specifically in this thematic area through Sycomore Eco Solutions. We have developed a proprietary environmental metric to assess companies' contributions to the ecological and energy transition (Net Environmental Contribution), which is integrated in the investment process of this fund. 

NB: The % of AUM is an estimate based on the average exposition of the fund Sycomore Eco Solutions to companies contributing to renewable energy.

Asset class invested

0.8 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Sycomore AM invests specifically in this thematic area through Sycomore Eco Solutions. We have developed a proprietary environmental metric to assess companies' contributions to the ecological and energy transition (Net Environmental Contribution), which is integrated in the investment process of this fund. 

NB: The % of AUM is an estimate based on the average exposition of the fund Sycomore Eco Solutions to companies contributing to green buildings.

Asset class invested

0.2 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Sycomore AM invests specifically in this thematic area through Sycomore Eco Solutions. We have developed a proprietary environmental metric to assess companies' contributions to the ecological and energy transition (Net Environmental Contribution), which is integrated in the investment process of this fund. 

NB: The % of AUM is an estimate based on the average exposition of the fund Sycomore Eco Solutions to companies contributing to sustainable forestry.

Asset class invested

0.1 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Sycomore AM invests specifically in this thematic area through Sycomore Eco Solutions. We have developed a proprietary environmental metric to assess companies' contributions to the ecological and energy transition (Net Environmental Contribution), which is integrated in the investment process of this fund. 

NB: The % of AUM is an estimate based on the average exposition of the fund Sycomore Eco Solutions to companies contributing to sustainable agriculture.

Asset class invested

3 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Sycomore AM invests specifically in this thematic area through Sycomore Shared Growth. The social contribution of products and services is integrated in the selection process of this fund, making health a key investment theme. 

NB: The % of AUM is an estimate based on the average exposition of the fund Sycomore Shared Growth to companies of the health sector.

Asset class invested

0.2 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Sycomore AM invests specifically in this thematic area through Sycomore Eco Solutions. We have developed a proprietary environmental metric to assess companies' contributions to the ecological and energy transition (Net Environmental Contribution), which is integrated in the investment process of this fund. 

NB: The % of AUM is an estimate based on the average exposition of the fund Sycomore Eco Solutions to companies contributing to water.

          Human capital
        

Asset class invested

5.3 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Sycomore AM invests specifically in this thematic area through Sycomore Happy@Work. We have developed an internal methodology to adress the thematic of human capital management, which is integrated in the investment process of this fund. 

NB: The % of AUM is an estimate based on the total contribution of the fund Sycomore Happy@Work to the total AUM.

15.4. Please attach any supporting information you wish to include. [OPTIONAL]



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