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Sycomore Asset Management

PRI reporting framework 2020

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Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

Other description (1) In addition to climate, our Environmental Strategy takes into account 4 other categories of environmental impacts: biodiversity, water, air quality and waste

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

Sycomore AM aims to deliver sustainable performance to its clients by investing in companies whose current market price does not reflect their economic and ESG fundamentals, or fundamental value. We believe that a company can only deliver long-term value if this value is shared by all stakeholders: employees, clients, suppliers, institutions, associations, shareholders and the environment. Our approach is therefore structured around five stakeholders in order to develop a full picture of the risks and opportunities associated with the companies under review.

For more information, please refer to our ESG integration policy : https://en.sycomore-am.com/5dc59295-1._ESG_integration_policy_SPICE_Sycomore_AM_July_2019_ENG.pdf

 

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

Our responsible investment policy and our investment policy are the same. 

Our SRI-labeled funds have exclusion and selection criteria that reduce the initial investment universe - this is the only difference with other funds. 

We have also defined specific RI guidelines for the funds of funds that are described in the dedicated funds selection procedure. 

01.6. Additional information [Optional].

          
        

SG 01 CC. Climate risk

01.6 CC. Indicate whether your organisation has identified transition and physical climate-related risks and opportunities and factored this into the investment strategies and products, within the organisation’s investment time horizon.

Describe the identified transition and physical climate-related risks and opportunities and how they have been factored into the investment strategies/products.

As an asset manager based in Paris and renting its office, climate-related transition and physical risks are related to companies we invest in through equities and bonds. As a consequence, Sycomore Asset Management measures and assesses transition risks related to its underlying investments since 2015. The associated metric and methodology are now fully embedded into our fundamental analysis tool. Physical risks are also assessed at the company (investee) level through our fundamental analysis, under the Environment pillar. Both physical and transition risks embedded into underlying investments are very heterogeneous and are therefore assessed at the investment level while the aggregated portfolio risk is looked at once a year from a transition risk standpoint (through our Net Environmental Contribution (NEC) metric and exposure to potential stranded assets).

The Net Environmental Contribution (NEC) is a user-friendly, advanced metric that enables investors to measure to what extent a given business model is strategically aligned with the energy and environmental transition. Using tangible physical data, taken from the whole value chain, it provides a snapshot of an activity’s net environmental contribution and can be aggregated at a company, portfolio or index level. To assess an environmental impact, the NEC uses a multi-criteria approach and considers at least two of the following five issues: climate, water, resources and waste, air quality, and biodiversity, in order to capture a comprehensive environmental footprint. The indicator is calculated on a scale from -100%, for the most damaging activities, to +100% for clear environmental solutions that fulfill the same given function. It is meant to provide an order of magnitude of the net impact. The 0% point is given for the average environmental impact of the function that the given activity is trying to fulfill. The intensity of the contribution is expressed analyzing a company activity by activity, and computing underlying contributions using their relative economic weight. For more information, please visit ww.nec-initiative.org.

The investment time horizons vary from one product to another but most of our products imply a minimum investment horizon of five years. Various time horizons are used in our SPICE analysis with a few selected criteria, such as "Alignment and Trajectory", assessed over a very long period (i.e. by 2100 for the latter).

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

Describe why your organisation has not yet assessed the likelihood and impact of climate risks

Sycomore Asset Management relies on existing publicly-available climate related scenarios to assess the implications of transition and physical risks on our investments. 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). Each of them relies on its given own likehood and implies a range of impacts that support our risk analysis, whereas we do not probabilize ourselves likelihood in itself.

As climate risks may not be modelled without considering all the environmental challenges (biodiversity, ressources, water, air) we have choosen a multi-criteria approach regarding natural capital and ecosystems rather than a climate-only approach.

01.8 CC. Indicate whether the organisation publicly supports the TCFD?

01.9 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

Sycomore AM identifies climate change and environmental challenges as having a significant impact on investments value. Sycomore AM has publicly disclosed its Natural Capital Strategy that provides an overview of the strategy in place to identify and manage material climate-risks and opportunities.

Our process for climate-related risks is integrated into overall risk management and in-depth assessment of companies that may become a portfolio holding. It is instrumental to our SRI investments strategies and is a key selection criteria for our green investment strategy and investment offering. Monthly and annual reporting include transition risk assessment data and information. Sycomore AM's aggregated NEC has been computed based on holdings. Results are publicly available on the website. The NEC at the entity level fuels reflexion regarding climate risks, future investment allocation and trajectory.

Since 2015, Sycomore AM has invested a great deal of time and resources in improving the way climate issues are integrated to its SPICE analysis model for any kind of activity. Climate is one of the 5 issues systematically reviewed in the Environment pillar. The SPICE analysis model now includes the specificities of article 173 and the recommendations issued by the TCFD, and in particular the following:

  • Transition risk assessment or the risks associated with the transition towards a low-carbon economy, including the contribution to the Paris Agreement goals and the long-term environmental objectives and the Alignment and Trajectory i.e. the issuer’s strategic alignment with the 2°objective by 2100 (and 2050 as an intermediary check point): these risks are systematically quantified using our Net Environmental Contribution (NEC) metric (see SG 13 CC for more detailed information) and are then integrated into the Environment pillar;
  • Physical risks assessment or the exposure to the physical consequences of global warming: these are monitored in the Environment pillar, under the dedicated section.

The environmental risks and opportunities assessment is part of our SPICE fundamental analysis which directly impacts asset valuation.

Governance and management of climate-related risks are described in the Natural Capital strategy and further details in the SG CC questions. Several key group of people have been instrumental in order to identify the environmental risks and opportunities at different stages of the strategy development and implementation:

  • Sycomore AM top management
  • Sycomore AM risk team
  • Sycomore AM ESG specialists
  • Sycomore AM Strategic Environment Committee chaired by Sycomore's Head of Environmental Strategy
  • Consulting companies and experts on environment and life cycle assessment

The NEC is also fully integrated within the risk management tools and strategy. The risk team have performed various analysis of performance and risk according to various level of transition risks. Our key metric, NEC, is embedded to all risk management and reporting systems. Portfolio holdings are thereby monitored on a monthly basis.

Investment professionals (portfolio manager and analysts) have been trained on the Environmental pillar and on the NEC methodology consisting in 15 value chain frameworks and one general framework. Risk teams as well as sales people have also been trained on the NEC methodology with accurate level of granularity.

 

1.10 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.

specify

          Our Natural capital strategy and Annual report named Sycoway as an investor  available on our website.
NEC methodology fully available at www.nec-initiative.org
        

SG 02. Publicly available RI policy or guidance documents

 

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

URL/Attachment

URL/Attachment

URL/Attachment

URL/Attachment

URL/Attachment

URL/Attachment

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

Other description (1) In addition to climate, our Environmental Strategy takes into account 4 other categories of environmental impacts: biodiversity, water, air quality and waste

02.3. Additional information [Optional].

We publish an annual report on our Responsible Investing activities: https://en.sycomore-am.com/5d64ea9b-RAPPORT_SYCOWAY_AS_AN_INVESTOR_UK_WEB.pdf

Two transparency codes also detail specific ESG exclusion and selection criteria for our SRI labelised funds: 

  • For SRI equity funds: https://en.sycomore-am.com/5e4a5cb9-5._SYCOMORE_-_SRI_equity_funds_-_AFG-Eurosif-FIR_Transparency_Code_2019_ENG.pdf
  • For Sycomore Selection Credit and Sycomore Next Generation funds: https://en.sycomore-am.com/5dcc39e9-5dc5393c-5._SYCOMORE_-_SSC_fund_-_AFG-Eurosif-FIR_Transparency_Code_2018_ENG-OCT_2019.pdf

 

 


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

Sycomore AM's policy regarding potential conflicts of interest is endorsed and supervised by our compliance department, which is composed of 3 people.

Regarding proxy voting, as outlined in the dedicated section of our voting policy:

     We have identified two potential risks that could lead to a conflict of interests: 

  • A board member of the company concerned is also a large client of Sycomore AM or one of its affiliates; 
  • A board member of the company concerned is also an associate or corporate officer at Sycomore AM or one of its affiliates;

   To prevent these risks:

  • Sycomore AM does not deviate from its voting policy, which is drawn up independently from its client relations;
  • None of Sycomore’s associates or corporate officers holds a mandate within the governance bodies of an issuer held in the funds managed by the firm.

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within investee entities.

04.2. Describe your process on managing incidents

Sycomore AM carries out a full monitoring of the controversies that affect companies in its investment universe, based on very diverse sources including press, NGO, union, sell-side analysis. In addition to these primary sources, we use MSCI ESG controversies research. It enables us to have access to a detailed and qualitative analysis of controversies as well as to get a more homogeneous assessment of controversies among our universe. The monitoring is embedded in our ESG analysis process as it has a direct bearing on a company's ESG rating: each controversy is graded on a 3-point scale depending on its severity, each controversy point lowers the relevant stakeholder group's rating (i.e. the S, P, I, C or E pillar) by 0.1 point. We assess the severity of controversies from 0 to -3 controversy points, based on the perimeter affected, the degree of certainty, the consequences, and the reaction of the company. Every company affected by a -3 rated controversy is excluded from our SRI investment universe. Furthermore, a controversy will trigger an engagement action from our side if the company has not provided adequate answers or taken the necessary actions to manage the controversy.


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