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Sycomore Asset Management

PRI reporting framework 2020

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Outputs and outcomes

LEI 12. How ESG incorporation has influenced portfolio composition

12.1. Indicate how your ESG incorporation strategies have influenced the composition of your portfolio(s) or investment universe.

Describe any reduction in your starting investment universe or other effects.

Sycomore AM's SRI approach reduces investment universes quite significantly: the exclusion and selection criteria of our main best-in-universe SRI fund exclude approximatively 50% of our investment universe. The selection rates are published annually for each fund in the Transparency Codes. 

Specify the percentage reduction (+/- 5%)

50 %

Describe any alteration to your investment universe or other effects.

Applying thematic filters to Sycomore AM's initial investment universe reduces the respective investment universes by 60% to 70% for thematic funds Eco Solutions, Happy@work and Shared Growth. 

Select which of these effects followed your ESG integration.

12.2. Additional information.[Optional]

- Overweight/underweight at stock level:

Our internal financial analysis model is based on a "fundamental risk score" to determine a company's risk premium. This "fundamental risk score" ranges from 5 to 1 depending on whether a company creates value and respects its key stakeholders. 5 sub-scores are calculated. One for the company's interaction with Suppliers & Society (S); the second for its People (P); the third for Investors (I), which includes corporate governance; the fourth for its Clients (C); and the fifth for the Environment (E). We thus refer this "fundamental risk score" as the SPICE score of a company. This SPICE score, ranging from 5 to 1, has a direct impact on a company's risk premium and thus on a company's target price. This applies to the entire investment universe.

- Reduce or prioritize the investment universe:

Integrating ESG puts the spotlight on ESG risks and opportunities. As a result, the investment universe for SRI funds is reduced (companies that are too risky are excluded and we aim to favour companies that are part of the solution for a more sustainable future).

- Buy/sell decisions:

Specifically for our SRI funds, there is a permanent controversies watch. Controversies are rated from 0 to 3 according to their severity. When there is a severe controversy (level 3) or when the newsflow is negative, fund managers have to make an active decision whether to keep or divest the company. For SRI funds, a level 3 controversy leads to immediate divestment. When the level of controversy for a company is considered too high, the ESG team can blacklist the company for all fund managers regardless of whether they manage an SRI fund or not.

- Engagement/Voting: 

Analyzing from an ESG perspective our investment universe means also spotting the areas of improvement a company has on ESG factors. Our analysis framework is therefore setting the basis for our engagement. On the voting side, the results of the governance pillar analysis can also influence our voting intentions. 

 


LEI 13. Examples of ESG issues that affected your investment view / performance

13.1. Provide examples of ESG factors that affected your investment view and/or performance during the reporting year.

ESG factor and explanation

Society - business ethics

In 2019, following several controversies affecting Fresenius Medical Care on business ethics, we decided to apply a -3 controversy to the company and thus exclude it from our SRI investment universe: several corruption facts from 2007 and 2016 in 17 countries, showing the structural aspect of these practices and leading to €231M settlement with the SEC in March 2019. All SRI portfolios exposed to the company divested their position following the decision. We engaged with the company and the current actions taken are not sufficient to mitigate the risk and lower the level of the controversy. 

ESG incorporation strategy applied Screening|Integration

Impact on investment decision or performance

The numerous controversies and the response of the company upon engagement, which we judge insufficient so far, resulted in a downgrade in the company's SPICE rating and in the decision not to buy the stock. It was also excluded from our SRI universe. We will monitor whether the company demonstrates progress in the coming years.

ESG factor and explanation

The stock selection process of our SRI fund Sycomore Eco Solutions aims at selecting companies offering solutions to the ecological and energetical transition and that have embedded this positive impact objective into their strategy to deliver profitable and sustainable growth.

 

 

ESG incorporation strategy applied Thematic

Impact on investment decision or performance

​In 2019, the Sycomore Eco Solutions fund together with other funds managed by Sycomore participated to the IPO of the first green cement company, Hoffmann Green Cement Technologies. The group produces cement with a low-carbon process, in a context where the cement industry is responsible for about 8% of the world's carbon dioxide (CO2) emissions, according to think tank Chatham House. This was an impactful investment, and not only from an environmental perspective; since the IPO, the stock was up 30% at its top, just before the COVID-19 crisis. 

ESG factor and explanation

Clients - Product safety & quality

In 2019, after two 737 Max jets crashes causing 346 deaths, we decided to apply a level 3 controversy, thus excluding Boeing from our SRI investment universe. The investigations carried out after these two crashes showed the responsibility of the company and especially its top management in the causes of these crashes. 

ESG incorporation strategy applied Screening|Integration

Impact on investment decision or performance

The stock is thus excluded from our SRI investment universe. It had no consequence on our portfolios as SRI funds were not exposed to the stock. 

13.2. Additional information.[Optional]


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