European SRI Transparency Code Version 3.0. Pictet Environmental Megatrend Selection

Transcription

1 European SRI Transparency Code Version 3.0 Pictet Environmental Megatrend Selection January 2016

2 Table of Contents Introduction 3 Section 1 Basic details 4 Section 2 Approach to ESG Evaluation of Companies 11 Section 3 Fund Management Process 16 Section 4 Controls and ESG Reporting 18 EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 2

3 Introduction The European SRI Transparency Code (the Code) focuses on SRI funds distributed publicly in Europe and has been designed to cover a range of asset classes, such as equities and fixed income. All information pertaining to the European SRI Transparency Code can be found at the following website: The code comes with a Guidance Manual for fund managers on how best to use the Transparency Code and respond to questions. The present version of the Code was approved by the Board of Eurosif on 3 October Statement of Commitment Socially Responsible Investments and sustainable development are a major part of Pictet Asset Management's (Pictet AM) strategic positioning. We have been involved in these investment strategies since 1999 and welcome the Code. This is our sixth statement of commitment and covers the period 31 May 2015 to 30 May Our full response to the European SRI Transparency Code questionnaire is set forth below and is available on our web site. Compliance with the Transparency Code Pictet AM is committed to transparency and we believe we are as transparent as possible given the regulatory and competitive environments in the countries in which we operate. Pictet Asset Management meets the full recommendations of the European SRI Transparency Code. European SRI Transparency Logo The European SRI Transparency logo signifies that Pictet Asset Management commits to provide accurate, adequate and timely information to enable stakeholders, in particular consumers, to understand the Sustainable Responsible Investment (SRI) policies and practices relating to the fund. Detailed information about the European SRI Transparency Code can be found on and information of the SRI policies and practices of Pictet-European Sustainable Equities and Pictet-Emerging Markets Sustainable Equities can be found on The Transparency Code are managed by Eurosif, an independent organisation. The European SRI Transparency Logo reflects the fund manager s commitment as detailed above and should not be taken as an endorsement of any particular company, organisation or individual. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 3

4 Section 1 Basic details The Fund Management Company 1a. 1a Provide the name of the fund management company managing the fund(s) to which this code applies. Pictet Asset Management SA 60 Route des Acacias 1211 Geneva 73 Tel.: Fax: Contact person: Marie-Laure Schaufelberger, Product Specialist, Thematic Equities, mschaufelberger@pictet.com 1b. Describe the general approach of the fund management company with regard to how it takes environmental, social and governance (ESG) criteria into consideration. Since 1997, with the creation of our first sustainable funds, Pictet has continuously created new products and improved its sustainable investment processes. In 2000, we launched the first ever Water fund, which seeks to improve the way global water resources are managed, stored, and distributed to the end user. This successful strategy was followed by the Clean Energy fund, and in 2008 the first ever Timber fund. This strategy invests in companies which own and manage timberland. In 2009, the growing environmental franchise added a strategy focused on Agriculture which invests in solutions to feed a growing world sustainably. More recently, on the SRI side, Pictet- Emerging Markets Sustainable Equities fund was launched, allowing us to offer sustainable equity portfolios for all major markets. Finally, Pictet-Environmental Megatrends Selection (EMS), a meta-fund comprising the 4 underlying environmental themes, was repositioned in 2014 into an actively managed 'best ideas' strategy looking to capture the growth in companies compatible with the planetary boundary concept and active across a wide range of environmental technologies, products and services. Although the main focus of all our environmental funds, and the EMS in particular, is on the environment (E), we are convinced that all environmental problems are, or ultimately become, social (G) and governance (G) problems as well. Polluted air and water have severe impacts on human health and quality of life for example, but this is also valid for longer-term issues such as biodiversity and climate change that pose a serious threat to the survival of humankind. Besides these macro ESG aspects embedded in our theme funds, we ensure that company-specific ESG criteria as well as some hard exclusion are taken into account by fully integrating them into our investment process. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 4

5 Is the fund management company approach towards ESG criteria aligned or inspired by its corporate social responsibility policy? Yes/No. If yes, insert a link to the company s CSR policy. If not, explain why not. Our approach to sustainability is born from our 210-year history as a family-owned business, which has grown organically over several generations by developing enduring relationships with our clients and our employees and has always been grounded in the highest standards of business and personal conduct. The Pictet Group's CSR activities are coordinated by the Sustainable Investment Board (SIB). The SIB is tasked with coordinating all activities that are linked to sustainable development within the Group. The SIB is chaired by Renaud de Planta, one of the Group's 7 Partners, and CEO of Pictet Asset Management, and comprises representatives from all business lines. Our overall CSR policy is described in the document The Pictet Group and Sustainability. Has the fund management company signed the Principles for Responsible Investment? If yes, please insert the link to the answer to the PRI questionnaire. If not, explain why not. Pictet AM has endorsed the Principles for Responsible Investment (PRI) since Our latest assessment is available on the PRI website. Is the fund manager a signatory to or member of other international and/or national initiatives supporting SRI practices? Please answer if you deem this information to be useful. In addition to adhering to the PRI, Pictet AM supports and actively participates in international and national initiatives, including: European industry organisation for sustainable and responsible investment (Eurosif) and national entities: Swiss Sustainable Finance, FNG, Spainsif and UKSIF. Institutional Investors Group on Climate Change (IIGCC), a collaborative platform to encourage public entities, investors and corporations to tackle climate change and speed up the transition to a less carbon-dependent economy. European Fund and Asset Management Association (EFAMA) working group on Responsible Investment. Carbon Disclosure Project, an organisation which encourages companies to disclose their impacts on the environment and natural resources. Global Footprint Network, a think tank that develops and promotes tools for advancing sustainability, including the Ecological Footprint and bio-capacity. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 5

6 Swiss Climate Foundation, which helps to fund small and medium enterprises (SME) that are proactive in their approach to reducing CO2 emissions. UK Stewardship Code, which aims to enhance the quality of engagement between asset managers and companies to help improve long-term risk-adjusted returns to shareholders. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 6

7 Has the fund management company established an ESG engagement policy? If yes, describe the policy by outlining its objectives and its methodology and/or, if it is public, insert a link to the policy. If not, explain why not. As part of its approach to responsible investment, Pictet AM engages with companies in two ways: Collaborative engagement through IIGCC, whose main goal is to deepen investors understanding of the risks and opportunities that companies face on climate change. IIGCC Engagement activities and topics are available on the website: Dialogue with some of the companies in which our environmental funds invest, when their activities are likely to pose a threat to the environment or society. We have hired a third-party engagement service provider to engage with companies on our behalf. Has the fund management company established a voting policy? If yes, describe the policy by outlining its objectives and its methodology and/or, if it is public, insert a link to the policy. If not, explain why not. Pictet AM actively exercises its voting rights for all actively managed equities funds, in accordance with its voting policy. In order to do so, we have mandated third-party proxy voting advisors. Our voting policy is available to clients. Describe how the fund management company or the group contributes to the promotion and the development of SRI. We conduct fundamental research on sustainable investment topics and publish from time to time our insights. In the last five years, we have published the following pieces: In Depth Global Environmental Opportunities which shows how investing for growth and safeguarding the environment are complementary goals In Brief Clean Energy The world raises its game which contains feedback from our biannual advisory boards on the importance of transitioning towards a cleaner energy mix. Advisory Board Insights Agriculture: cutting food waste from farm to fork on the importance of cutting waste and increasing efficiency to solve the global agricultural imbalance. The SRI Performance Paradox which shows how sustainable investing is a constant effort to strike a balance between short-term cost and long-term returns. Can SRI prevent the next financial crisis? which demonstrates that extra-financial research has to be combined with specific financial sustainability criteria. Rio+20: The future we want? which emphasises that true sustainability can be achieved only within the biophysical limits of our planet. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 7

8 All our research papers and reports are available on our website Our experience in managing sustainable funds, as well as our research and contribution to the development of sustainable finance, have been recognised by many awards. Most recently, our credentials in sustainable investment have been recognised as SRI Provider of the Year by the European Pensions Awards and as SRI/ESG Provider of the Year by the UK Pensions Awards. Moreover, the Pictet-European Sustainable Equities fund was awarded the Novethic Label since c. Describe/List your SRI products and the specific resources allocated to your SRI activities. Briefly describe the SRI fund range (number, assets under management, strategies,...) Pictet AM offers clients a wide range of high-quality products in the field of sustainable investment, which takes two main forms: Best-in-Class type Sustainable equity portfolios, which focus on companies with superior corporate social and environmental responsibility. Pictet-European Sustainable Equities Pictet-Emerging Markets Sustainable Equities Pictet-Ethos Swiss Sustainable Equities Thematic funds, which focus on environmental themes that are key to the concept of sustainability. Pictet-Water Pictet-Clean Energy Pictet-Timber Pictet-Agriculture Pictet-Environmental Megatrend Selection (EMS) We manage USD 2.7 bn in 'best-in-class' type SRI strategies and USD 8 bn in focused environmental strategies. Describe/Detail the resources allocated by the fund management company (organisation, ESG research internal/external, dedicated portfolio management team, ) and indicate where this information is available. Sustainable Equities Portfolios are managed by a dedicated team of six portfolio managers and analysts, assisted by four investment managers for operational activities. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 8

9 Environmental thematic funds comprise 12 portfolio managers, supported by 5 respective Advisory Boards, which are composed of leading experts of each theme. 1d. Describe the content, frequency and resources allocated/used by the fund management company to inform investors about the ESG criteria taken into account. For our thematic fund range, positive selection based on environmental criteria are at the basis of our approach. We do also integrate standard ESG criteria into the investment process, however we do not yet regularly communicate or report on the latter. The Thematic fund(s) 1e. Provide the name of the fund(s) to which this Code applies and its (their) main characteristics Pictet- Environmental Megatrend Selection (EMS) - ISIN: LU Legal status: Sub-fund of the Luxembourg-registered Pictet SICAV - Inception date: 2010 Describe the main characteristics of the fund(s): geographical focus, asset class, SRI strategy used (use the classification provided by Eurosif/EFAMA). The strategy seeks capital growth by investing principally in securities of companies that are compatible with the planetary boundary model and active throughout the environmental value chain. The fund favours companies operating in services, infrastructures, technologies and resources related to environmental sustainability. The investment universe is not restricted to a specific geographical zone. A systematic and proven thematic portfolio construction process leads to a best idea portfolio with desirable risk/return characteristic. We are benchmark agnostic, the reference index is the MSCI World. 1f. What is (are) this (these) fund(s) trying to achieve by taking account of ESG criteria? With three billion more middle-class consumers expected by 2030, pressure on the world s finite natural resources will intensify, leading to scarcity and quality challenges. The private sector, governments and consumers are increasingly becoming aware of the threat posed by resource scarcity and pollution. In many countries, environmental challenges have risen to the top of the political agenda and adoption of supportive policies is accelerating globally. There is an opportunity for companies that recognise this trend and can offer solutions. The private sector is rising to the challenge with the most proactive companies integrating environmental policies into their sales strategies and business models to generate new opportunities. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 9

10 Last, but not least, and as we already stated above (1b), we truly believe that offering solutions to the most urgent environmental problems of our time is the basis and probably the most fundamental contribution to the well-being of the planet and its people. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 10

11 Section 2 Approach to ESG Evaluation of Companies 2a. What fundamental principles underlie the ESG research methodology? Describe the principles, standards or norms on which the ESG analysis is based for each of the environmental, social/societal and governance dimensions. Include brief comments about how stakeholders are consulted, as appropriate. To identify the opportunity set, the investment team uses a novel and rigorous framework (planetary boundaries framework) that considers nine key environmental dimensions. For each dimension, a safe operating space is defined thresholds that should not be crossed. To that purpose a proprietary tool has been developed and is used to rate constituents of the investment universe according to the resource uses and environmental emissions generated by their products and services over their life cycle. This first step helps narrow the investment universe to companies operating within the planetary boundaries. We do also integrate standard ESG information later into the investment process. However, the main selection logic behind this fund is based on environmental sustainability of companies products and services. 2b. What internal and external resources are used to carry out this research? Describe the general information used to carry out the ESG research: internal analysis, ESG rating agencies, other external sources of information. A product life-cycle analysis is carried out based on proprietary research methodology and based on the planetary boundary framework, developed by our in-house teams and undertaken on an exclusive basis by a specialised external research partner. The role of this partner an industrial environmental consulting company and not a traditional SRI research agency - is to help us evolve our methodology and identify companies as having a low environmental impact and whose products and services are making a positive active contribution to solving environmental issues. Our standard ESG analysis is sourced primarily from external specialised research providers. The role of these providers is mainly to collect raw data provided by companies, the media and other relevant sources (e.g. NGOs) as well as providing information on critical business activities and controversies. 2c. Which ESG analysis criteria are used? Indicate the main criteria for each of the environmental, social/societal and governance dimensions. Specify if these criteria differ according to sectors, geographical zones, the type of company,... If appropriate, provide an example. i) The EMS is a fund focused on environmental sustainability. As such the most important selection criteria are pertaining to the environment (E). Investment managers aim to identify EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 11

12 companies whose products and services have a low environmental impact and are actually making a positive active contribution to solving the most urgent environmental issues of our time To identify the opportunity set in this context, the investment team uses a novel and rigorous framework that considers nine key environmental dimensions, the planetary boundary framework, spearheaded by the Stockholm Resilience Center. The planetary boundaries of each dimension define a safe operating space. We require companies in which we invest to operate within these boundaries, and that they actively help other companies by their products and services to do the same. Source: PAM based on Stockholm Resilience Centre ii) Our standard ESG analysis focuses on four aspects: 1. Environmental and social practices, which cover issues such as carbon footprint, energy efficiency, water management, labour and supply chain management. 2. Corporate governance, including issues such as business ethics, audit and accounting practices, board composition, minority shareholders rights and executive remuneration. 3. ESG-related controversies, such as incidents involving employees, major environmental pollution or damage, supply chain issues and product scandals. 4. For the EMS fund we apply a strict exclusion level of 5% turnover for nuclear energy as well as for involvement in arms manufacturing/defence. We also exclude stocks that we consider to be in breach of the Global Compact. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 12

13 2d. What is your ESG analysis and evaluation methodology (how the investment universe is built, rating system, )? Describe the ESG evaluation/rating system and how it is built by explaining how the various ESG criteria tie in with each other. If appropriate, provide an example. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 13

14 The first slide on the previous page refers primarily to the financial investment process in general, while the second slide is highlights the aspects of responsible investment in more detail. Our investment process works as follows: 1. The proprietary planetary boundary filter assesses companies core activities, products & services from a life cycle perspective with regards to the 9 planetary boundaries (Climate change, Ocean acidification, Stratospheric ozone depletion, Biogeochemical flows, Freshwater use, Land-system change, Biodiversity, Atmospheric aerosol loading, Chemical pollution) and selects companies operating within the safe operating space. 2. The initial opportunity set of about companies is then further narrowed down with a view to identify companies that make an active environmental contribution, meaning they not only have a low environmental footprint themselves, but actually can help other companies to reduce their footprint by their products & services. We require a minimum exposure to environmental themes of 20% in terms of turnover, Ebitda or Ebit. At the end of this step we d also remove any stock that derives more than 5% of turnover from nuclear or defense/weapons-related activities or is considered by our investment managers to be in breach of UNGC principles. 3. In this way, approximately 400 companies make it into our eligible investment universe. We leverage existing company analyses whenever available (when stocks are held within another thematic strategy, for instance). Since all these scores are strategy specific, scores from other thematic strategies must be adapted relative to EMS universe. For companies w/o pre-existing fundamental scores, financial valuation screens are used and the top quintile of screened stocks are then scored in detail. We thus focus on the 200 most promising companies. It is at this stage that we also integrate the standard ESG information into our investment process. 4. The stocks with the most attractive risk-return potential based on the above-mentioned scoring process are then combined into an actively managed high conviction portfolio of approximately 60 stocks. 5. Active Ownership: We believe that being an active owner can enhance the value of our investment. That is why we actively exercise our voting rights, executed by ISS and based on PAM s own proxy voting policy, for all companies in the portfolio. For our environmental funds, we also engage with companies through Hermes EOS, a leading provider in this area. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 14

15 2e. How frequently is the ESG evaluation reviewed? Please briefly explain the methodology update process and who is involved. If appropriate, explain if the methodology has changed in the past 12 months and the nature of the key changes. The environmental footprint of companies with regard to the planetary boundary framework is revised either annually or on an ad- hoc basis if new information leads us to revise the assessment. The underlying method and the proprietary rating tool is constantly being improved and optimised together with our external partner. For standard ESG information, the screening criteria are reviewed on a regular basis by our SRI rating suppliers in line with new ESG issues (e.g. industry standards, policy and regulatory developments). Our investment managers do also have access to daily and monthly alerts on basic ESG controversies that may materially affect the assessment of companies in the portfolio. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 15

16 Section 3 Fund Management Process 3a. How do you take into account ESG criteria when defining the universe of eligible investments? If appropriate, describe the eligibility threshold and the resulting level of selectivity. The opportunity set is defined through a rigorous framework that identifies companies that operate within a safe operating space regarding the most important global environmental challenges (planetary boundary framework). The initial opportunity set (of low impact companies) is then further reduced to about 400 stocks, with a view of laying the focus on companies that can make an active environmental contribution to the solution of the most urgent environmental problems. The environmental theme exposure needs to be above 20% of a company s activity. We d finally remove any remaining companies that would go against our exclusion criteria (nuclear, defence/weapons, UNGC breach). Thus companies within the opportunity set, with >20% products and services actively solving environmental challenges and not violating the defined exclusion criteria form the strategy s investable universe. The selectivity is thus >90% for the planetary boundary screening versus the entire background universe of investable securities and >85% for the active environmental theme exposure and exclusions. Please note that the exclusion filter is applied sequentially after the narrowing down to approximately 400 stocks. The planetary boundary model and the environmental theme focus already eliminate virtually all problematic companies, so the hard exclusion filter (nuclear, defence/weapons, UNGC breaches) only eliminates a handful of additional companies and is thus not very selective on its own. 3b. How do you take ESG criteria into account into the portfolio construction? Describe how you link ESG selection with the financial analysis or with portfolio management. More precisely, describe how the results of the analysis of each of the dimensions (E, S and G) are integrated into the investment/divestment process. If applicable, state where you provide information on divestments that have occurred in the past year on the basis of ESG criteria? If appropriate, explain how potential ESG weightings are defined and describe your treatment of companies that are not subjected to an ESG analysis. Integration of standard ESG information occurs when companies are scored fundamentally during step 3 of investment process. ESG scores do actually impact on the target weight of companies in the portfolio (a better ESG score will increase the target weight of a security in the portfolio and vice versa), however the ESG scoring on its own does not lead to an outright exclusion of a stock from the investment process. EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 16

17 3c. Does (do) the fund(s) have a specific ESG engagement policy? Please explain what you mean by engagement. Describe how you select the companies/themes for engagement activities and the impact on the portfolio management of the fund(s). Who undertakes engagement on behalf of the fund (internal and/or service providers)? Our environmental thematic equities work together with Hermes EOS who have engaged on extra financial issues with companies held in our portfolios since Previously, we worked with Ethos in Switzerland on bespoke engagements. As long term investors, and bottom up stock pickers, we believe that engagement is an important part to our process to fully understand the companies we invest in. More information on specific engagements available on or upon request. 3d. Does (do) the fund(s) have a specific voting policy integrating ESG criteria? All our environmental funds actively exercise voting rights. All our funds use proxy-voting service provider ISS. Our policy is based on ISS global voting principles ( 3e. Does (do) the fund(s) engage in securities lending activities? Yes but to a very limited extent. (i) is a policy to recall the securities in place in order to exercise the voting rights? yes (ii) does the counterparty selection process integrate ESG criteria? this is currently being looked into 3f. Does (do) the fund(s) use derivative instruments? No 3g. Is a share of the fund(s) invested in unlisted entities pursuing strong social goals? No EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 17

18 Section 4 Controls and ESG Reporting 4a. What internal/external control procedures are in place to ensure the compliance of the portfolio with the ESG rules defined in section 3 of this Code? State who is carrying out the controls, their frequency and within which timeframe the fund(s) have to comply should a breach be detected. The environmental impact with regard to the planetary boundary model of the EMS portfolio is monitored and reported internally, the investment managers are held responsible to integrate ESG criteria in the investment process in the same manner as they are responsible to take all relevant financial criteria into account. There are bi annual quality reviews by the risk team, the CIO and a Partner, where the portfolio is reviewed in light of the investment process. 4b. Please list all public media and documents used to inform investors about the SRI approach to the fund, and include URLs. This should include a link to the detailed list of holdings of the fund(s), which may not be more than 6 months old. The following standard information is accessible on our website ( available on each fund section): Factsheet (on a monthly basis) Fund Manager s Comment (on a monthly basis) Annual Report Semi-Annual Report Prospectus Additional information related to the sustainability of our funds is also publicly available on our website: Engagement reports by Hermes. Monthly presentations Voting statistics are planned to be added within the year EUROPEAN SRI TRANSPARENCY CODE - VERSION 3:0 PAGE 18

19 Pictet Asset Management Please visit our website for further information This marketing material is issued by Pictet Asset Management (Europe) SA. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund s prospectus, KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on or at Pictet Asset Management (Europe) SA, 15, avenue J. F. Kennedy L-1855 Luxembourg. The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments. Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management (Europe) SA has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional. The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk factors are listed in the fund s prospectus and are not intended to be reproduced in full in this document. Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund s full documentation or any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document.