Investment objective
To provide long term capital appreciation with a diversified and actively managed portfolio of European sustainable equities, without any specific restriction on tracking error. The sub-fund uses a combination of financial and non-financial indicators to identify securities which meet the overall sustainability criteria applied by the External Investment Manager. The sustainability criteria are designed to identify companies with strong Environmental, Social and Governance (ESG) characteristics, which are positively exposed to three long-term sustainable themes such as better resource efficiency, improved health and greater safety and resilience, while still providing long term capital appreciation.
Investment universe
The investible universe is reduced by at least 20% after implementation of the sustainability filters.
ESG methodology
The sustainability research has various and mutliple sources internal Advisory Committee : guides on themes and new challenges and opportunities facing companies, academic Institutions inputs: for example, Cambridge Institute for Sustainability Leadership to develop longer term thinking and to refine the set of themes, indepedant ESG Research Providers: such as MSCI, ISS, Ethical Screening, to help provide initial analysis of sustainability factors, meetings with companies management and on-site visits and Sell-side research.
All the above feeds the External Investment Manager’s sustainability matrix rating. The investment manager will use its proprietary ESG scoring system to select the companies.
In order to be investable, the company score must attain a minimum C3 rating (or above). The scoring is the result of the two following analysis (and sub-scores):
A first score from A (best) to E (worst) is attributed to the company as an evaluation of the “product sustainability” This score is a constituent of the sustainability matrix. It assesses the extent to which a company’s core business helps or harms society and/or the environment. An A rating indicates a company whose products or services contribute to sustainable development (via the investment themes); an E rating indicates a company whose core business is in a conflict with sustainable development (such as tobacco or very polluting activities such as coal fired electricity generation).
A score from 1 (best) & to 5 (worst) is attributed to the company as an evaluation of the “management quality” (I;e; : good governance) of a company. This score is a constituent of the sustainability matrix. The main following metrics are considered :• independence of the board and key committees (nominations, remuneration and audit) • diversity of the board • alignment of remuneration with investors • encourage remuneration to be linked with pertinent extra-financial ESG factors.
The underlying sub-indicators used are dependent on what activity the business does; As an illustration, hereunder a list of indicators used (the list is not exhaustive) : Installed capacity and capital expenditure towards sustainable energy (when it comes to consider company involved in power generation), healthy business/food qualty improvement (when it comes to consider company involved in the food business), integration of ESG aspect in a business as operational and safety perfroamnce, customer satisfaction etc. (all companies), overwiew of the decarbonization targets (to encourage companies to the be more consistent with the science-based targets on climate).
The extra-financial process covered 100% of the portfolio (cash and derivatives are not covered by the ESG analysis).
Investment policy
The sub-fund contributes to environmental and social objectives and qualifies as an investment product in accordance with article 9 of Regulation (EU) 2019/2088 on sustainability related disclosures in the financial services sector. The sustainable objective of the fund is generate competitive investment returns by investing in sustainable businesses helping to deliver a cleaner, healthier and safer world and use the External Investment Manager’s and the Management Company’s influences as investors to improve the way businesses manage their interaction with the environment and society.
The sub-fund will also focus of its efforts on companies exposed to and helping to deliver the positive changes to our economy as captured by their themes. For this, all investments are examined for adverse impacts and adherence to global norms on environmental protection, human rights, labour standards and anti-corruption. The sustainability approach is designed to implement the Do Not Significantly Harm principle.
Sustainability is integrated into the sub-fund through three main stages of the investment process: stock selection, portfolio construction and company engagement.
Stage 1: stock selection has four key filters: thematic analysis; sustainability analysis; business fundamentals; and valuation. The first two are where our view of sustainability and impact is integrated.
The global idea generation approach is emphased through three mega trends as Better resource efficiency (cleaner), Improved health (healthier) and Greater safety and resilience (safer), and 21 themes within these.
Then the selected companies are given a sustainability rating through the sustainability analysis phase.
The business fundamentals must be robust (growth, resilient returns, quality of earnings)
The company should pass the internal financial forecast test to be part of the list of companies that can be investible for the portfolio (the list counts around 150 companies at this step).
Next to this process, the company should pass the exclusion rules of the Sustainable Investment Policy of the Management Company. The External Investment Manager may implement other exclusions as well. In that respect, the External portfolio manager will not invest in companies that have a strategic involvement in nuclear.
Stage 2: portfolio construction diversifies systemic risk while also skewing the portfolio to enhance the overall impact of the portfolio. Selected companies should derive at least 25% of the value their business directly form one, at least of these themes. Thus, only companies which are rated C3 rating or higher as depicted in the picture above will be considered suitable for the sub-fund, The External Investment Manager hasa rules-based approach where it aims to construct a concentrated portfolio of best ideas, of between 45 and 55 stocks. Turnover is typically 10%, representing the long-term nature of our investments.
Stage 3: sustainability drives the engagement with portfolio companies where the Portfolio manager will use its long-term ownership and relationship with management to monitor change in carefully selected areas. The External Investment Manager may also allow for a restricted proportion of companies to have management ratings of 4 (5, is the worst score), recognising that the Portfolio manager can engage with management of these businesses to improve the performance of investee companies with respect to SDG and other ESG indicators.
Methodological limitations can be assessed in terms of: nature of ESG information (quantification of qualitative data), ESG coverage (some data are not available for certain issuers) and homogeneity of ESG data (methodological differences).
The minimum asset allocation in such securities on a consolidated basis (direct and indirect investments) will be of 60% of the sub-fund's net assets. The minimum sub-fund’s investment in equity securities will be of 75% of the sub-fund's net assets. Moreover, until the 30th September 2021, the minimum ownership of equities in companies established in countries of the European Economic Area having concluded a tax agreement with France including a clause on administrative cooperation for combating fraud and tax evasion will be at least 75% of the sub-fund’s net assets.
The sub-fund may also hold on an ancillary basis cash and cash equivalents including certificates of deposit and short-term deposits.
The sub-fund may invest for maximum 10% of its net assets in funds that have been selected in accordance with a number of qualitative and quantitative criteria. The qualitative analysis assesses the stability and strength of the investment manager, as well as its investment process and philosophy. The quantitative selection process aims to select only funds with proven risk-adjusted performance.
Investments in debt securities will not exceed 15% of its net assets.
This sub-fund is actively managed and is compared to the risk benchmark as described in Appendix 2 for performance and risk level indicator purposes. However, the reference to this index does not constitute any objective or limitation in the management and composition of the portfolio and the sub-fund does not restrain its universe to the index components.
The index does not evaluate or include its constituents on the basis of environmental and/or social characteristics and is therefore not aligned with the ESG characteristics promoted by the sub-fund.
Therefore, returns may deviate materially from the performance of the reference index.
