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Trecento

PRI reporting framework 2020

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

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
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.

Regarding ESG incorporation strategy for actively managed fixed income investments, we use a combination of exclusion policies for screening universes and ESG integration as a best-in-class approach to select investments.

01.3. Additional information [Optional].

Trecento AM's investment strategy is actually based on thematic funds invested with a RI approach. Since its creation in 2011, Trecento AM has lauched two thematic founds that are invested on the healthcare field and in robotics companies. The choice of this two sectors came from Trecento's will to invest in innovation and disruptive technologies that will modify and improve our way of living, consuming (raw material, energy, etc.), producing, and even healing ourselves.

Trecento AM uses ESG screening and ESG integration as well as a core focus of its investment process.

 

Exclusion policy for Screening

Trecento AM has implemented an exclusion policy that applies before the investment selection and that restricts the potential investment universe of our SRI funds.

- Norms-based exclusion: elimination from our SRI investment universe of listed issuers that do not comply with international norms, including the 10 Principles of the the United Nations Global Compact.

- Sectoral exclusion: elimination from our SRI investment universe of listed issuers when their core activity is, according to Trecento AM, incompatible with the principles of socially responsible investment.

On its website (http://www.trecento-am.com), Trecento AM releases the list of sectors and issuers included in this sectoral and normative exclusion policy, as well as information and details on the choice of organisations we have deemed relevant as a source for this exclusion policy.

 

ESG integration and investment selection policy

Our vision of socially responsible investment is intented to reconcile economic performance with a social and environmental positive impact by financing companies and public entities that contribute to the sustainable development whatever their line of business.

We have therefore implemented an investment selection policy that focuses on identifying the issuers (non-excluded in the screening process for sectoral or norms-based reasons) with the best ESG practices (« best-in-class » approach) in the sectors and sub-segments of investment of our thematic funds :

- to identify and thus to mitigate the risks associated with each issuer that would deteriorate value creation for investors.

- to provide capital and funding to the best issuers and thus encourage other issuers to improve their ESG practices to gain acces to new capital

- to participate to the fight against global warming and energy transition.

This policy is fully described and available on our website: http://www.trecento-am.com


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.

Regarding ESG incorporation strategy for actively managed fixed income investments, we use a combination of exclusion policies for screening universes and ESG integration as a best-in-class approach to select investments.

- The ESG screening relies mostly on external raw data, analysis and scoring that is then vetted by our in-house analysts.

- The ESG integration is done in-house by our analysts that perform comprehensive fundamental analysis of the issuers, including a full ESG analysis. We apply a est-in-class policy to select investments.

These analysis and the conclusions of the fund managers or analysts are presented at our weekly investment committee.

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:

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

Trecento AM has implemented an exclusion policy that applies before the investment selection and that restricts the potential investment universe of our funds.

- Norms-based exclusion: elimination from our SRI investment universe of listed issuers that do not comply with international norms, including the 10 Principles of the the United Nations Global Compact.

- Negative (or Sectoral) exclusion: elimination from our SRI investment universe of listed issuers when their core activity is, according to Trecento AM, incompatible with the principles of socially responsible investment.

On its website (http://www.trecento-am.com), Trecento AM releases the list of sectors and issuers included in this negative (or sectoral) and normative exclusion policy, as well as information and details on the choice of organisations we have deemed relevant as a source for this exclusion policy.

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

A typical example of an issuer that is excluded for environmental and social negative reasons is a manufacturer of nuclear weapons. Nuclear weapons are violating fundamental humanitarian principles and are considered as an inhumane weapon.

Moreover, the potential global impacts of nuclear blasts on the environment would be desastrous as even a small-scale war would quickly devastate the world's climate and ecosystems, causing damage that would last for more than a decade.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Another example of an issuer that is excluded for environmental and social negative reasons is a coal producer. Thermal coal represents the largest source of CO2 which is a greenhouse gas responsible for the ongoing global warming. As coal is widely available, at a low cost, it has been used for decades by countries looking for a cheap energy source. It is therefore a significant climate risk, not to mention an environmental risk (pollution and impact on biodiversity of coal mining activities).

Coal producers are excluded for social negative reasons as well since working conditions in coal mines are harmful for employees (health, safety). The violation of international labor norms also implies that these companies can be excluded for social norms-based criteria.

It has been demonstrated that some coal producers, to overcome local resistance to new mines or coal-based plants due to environmental and social concerns, used corruption of local authorities ou PPE to launch or maintain operations. It then triggers governance norms-based exclusion for some specific issuers.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

We exclude issuers that have been convicted of corruption. We have for example excluded this French company which was bribing officials to gain capital goods contracts in some countries, usually emerging markets.

05.2. Additional information.

Our negative and norms-based exclusion policy is fully described on our website.


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
Norms-based screening

06.2. Additional information. [Optional]


(B) Implementation: Thematic

FI 07. Thematic investing - overview (Private)


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..

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

The actively managed FI securities that we held are redeemable at first demand. If the issuers were to not comply with the bond proceed clause, we could redeem the bonds. Therefore the issuer has every reason to comply with the intented allocation of the bond.

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.

          As we are both bondholders and shareholders, we have access to issuers' specific internal reports that enable us to better asses the impact.
        

09.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

After the ESG screening process, we conduct an ESG integration process in the form of a detailed ESG analysis of an issuer, on the 3 key pillars E, S and G, that enables the analyst to assess the global ESG policy of the issuer and to allocate a proprietary ESG score (from 1 to 5, 5 being the highest score).

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)

After the ESG screening process, we conduct an ESG integration process in the form of a detailed ESG analysis of an issuer, on the 3 key pillars E, S and G, that enables the analyst to assess the global ESG policy of the issuer and to allocate a proprietary ESG score (from 1 to 5, 5 being the highest score).

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)

For each analysed issuer (new investment case or update of an existing investment case), the analysts of Trecento AM assess the global ESG policy implemented or not by the issuer and assign a proprietary ESG score (from 1 to 5, 5 being the highest score). This analysis materialises by a proprietary evaluation grid that is adapted to the specificities and the rampant environmental/social risks of a sector or sub-sector. By principle, the analysis of the governance of an issuer is the same whatever the sector or sub-sector. Each evaluation grid includes between 40 and 45 indicators, the analysis of each of them is qualitatively commented, formally documented and duly sourced.

The evaluation grid enables the analyst to score each of the E, S and G criteria and result in a score for each E, S and G factor. The ESG global score of an issuer is a weighting of these individual scores, depending on the number of indicators amongst each factor.

12.3. Additional information.[OPTIONAL]


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