European SRI Transparency Code Version 3:0

Transcription

1 European SRI Transparency Code Version 3:0 December 2014 The European SRI Transparency Code (the Code) focuses on SRI funds distributed publicly in Europe and has been designed to cover a range of assets classes, such as equity 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 to best use and respond to the Transparency Code. The present version of the Code has been approved by the Board of Eurosif on October 3, Statement of Commitment Sustainable and Responsible Investing is an important part of the strategic positioning of Pictet Asset Management. We have been involved in SRI since 1999 and welcome the European SRI Transparency Code. This is our fifth statement of commitment and it covers the period 31 st May 2014 to 30 th May Our full response to the European SRI Transparency Code can be accessed below and is available on our web site. Compliance with the Transparency Code Pictet Asset Management is committed to transparency and we believe that we are as transparent as possible given the regulatory and competitive environments that exist in the countries in which we operate. Pictet Asset Management meets the full recommendations of the European SRI Transparency. Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 1

2 Section 1 Basic Details The Fund Management Company 1a. Provide the name of the fund management company managing the fund(s) to which this code applies. This code applies to Pictet-Ethos CH - Swiss Sustainable Equities (the Fund) which is managed by Pictet Asset Management (Pictet AM). ESG research, proxy voting and company engagement is conducted by Ethos Services SA (Ethos). Pictet Asset Management SA Route des Acacias Geneva 73 Tel Fax: Contact person: Mircea Florescu, Senior Client Relationship Manager (mflorescu@pictet.com) Ethos Services SA Place Cornavin Geneva 1 Tel Fax: Contact person: David Jeannet, Senior Investment Manager (djeannet@ethosfund.ch) Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 2

3 1b. Describe the general approach of the fund management company with regards to how it takes environmental, social and governance (ESG) criteria into consideration. Pictet AM and Ethos have an established track record in sustainable investment and corporate governance. Pictet AM provides two types of sustainable investment strategies. SRI equity portfolios aimed at meeting investors' sustainability objectives while delivering superior risk-ad justed returns; Thematic portfolios focusing on environmental themes or sectors that are key to the concept of sustainability. Ethos offers four complementary services: SRI funds and mandates; Company research and analysis on ESG issues; Active and responsible exercise shareholder voting rights; Engagement with company management on material ESG issues. Is the fund management company approach towards ESG criteria aligned or inspired by its corporate social responsibility approach? Yes/No. If yes, insert a link to the company s CSR policy. If not, explain why not. The Pictet Group s approach to CSR is described in the document The Pictet Group and Sustainability. quities/sri_publications.html Ethos CSR charter is available on 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 and Ethos are both signatories of the Principles for Responsible Investment (PRI). Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 3

4 Is the fund Manager a signatory or a member of other international and/or national initiatives supporting SRI practices? Please answer if you deem this information to be useful. Pictet AM and Ethos support and actively participate in a number of international and national initiatives, including: - Swiss Sustainable Finance (SSF) - Institutional Investors Group on Climate Change (IICGG) - Carbon Disclosure Project (CDP) - UK Stewardship Code. 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. In Switzerland, Ethos engages with companies on various ESG topics via the Ethos Engagement Pool (EEP) which was launched in 2004 and includes 100 institutional members. This unique vehicle pools the resources of Swiss institutional investors that aim to engage with Swiss companies on various ESG issues. Further information is available on 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. The Ethos Principles of Corporate Governance and voting guidelines set out the corporate governance principles and proxy voting guidelines that apply to the Fund (available on These principles underpin both Ethos' dialogue with investee companies and the vote at shareowners' general meetings. Describe how the fund management company or the group contributes to the promotion and the development of SRI. Pictet AM and Ethos actively contribute to the promotion and development of SRI through participation in conferences and events in Switzerland and internationally, and have published a number of research papers that are available on and 1c. 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,...) Both organisations offer comprehensive range of SRI funds covering major asset classes and geographies. A complete list of SRI funds offered by Pictet AM and Ethos is available on and Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 4

5 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. Both organisations have resources dedicated to Sustainable Investment and ESG Research. Further information is available on and 1d. Describe the content, frequency and resources allocated/used by the fund management company to inform investors about the ESG criteria taken into account. The investors are informed on monthly, quarterly, semi-annual and annual basis, in form of monthly factsheets, quarterly reports and manager comments, etc. These reports are publicly available on and Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 5

6 The SRI Fund(s) 1e. Provide the name of the fund(s) to which this Code applies and its (their) main characteristics Pictet-Ethos CH Swiss Sustainable Equities (legal status: Swiss Investment Fund - Art. 25, 70; class E dy: ISIN CH ; class P dy: ISIN CH ; class I dy: ISIN CH ). Describe the main characteristics of the fund(s): geographical focus, asset class, SRI strategy used (use the classification provided by Eurosif/EFAMA). Pictet-Ethos CH Swiss Sustainable Equities invests in Swiss equities on a best-in-class basis and is benchmarked against the Swiss Performance Index (SPI). 1f. What is (are) this (these) fund(s) trying to achieve through taking into account ESG criteria? For instance, financing a specific sector, reducing risks, support better CSR practices, develop new value creation opportunities, other objectives. We want to provide investors with a systematic exposure to companies with superior corporate responsibility features and higher expected returns whilst constructing a portfolio that is inherently less risky than the underlying market. To achieve this aim we follow 3 steps: 1. Definition of the eligible universe by taking into consideration ESG criteria 2. Companies analysis through financial quality assessment 3. Construction of a defensive portfolio. SUMMARY OF THE RESEARCH AND INVESTMENT PROCESS Source: Pictet Asset Management Because sustainability is implemented in a rigorous risk-controlled manner, this fund is designed to be a core product in the Swiss equities market suitable to both responsible and Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 6

7 conventional investors. 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. Ethos ESG analysis takes into account internationally recognised norms, treaties and best practices, such as the Universal Declaration of Human Rights, the conventions of the International Labour Organization, the Rio Declaration on Environment and Development, and the UN Global Compact, among others. 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. For Swiss companies, Ethos builds the ESG ratings using mainly its own primary research. To do so, Ethos uses all public information available such as information disclosed by companies (annual report, corporate press releases, articles of association, minutes of general meeting etc.), Ethos studies (Ethos Remuneration Survey, Corporate Social Responsibility Studies, etc.) as well as studies from external providers, media news, etc. For specific metrics, Ethos relies on information provided by third parties (RepRisk for reputational controversy monitoring). 2c. Which ESG analysis criteria are used? Indicate what the main criteria for each of the environmental, social/societal and governance dimensions are. Specify if these criteria differ according to sectors, the geographical zones, the type of company. If appropriate, provide an example. In order to evaluate and measure their contribution to sustainable development, companies are assessed against a comprehensive set of ESG criteria. As part of this, Ethos not only considers company operations but also the added value brought by products and services in terms of ESG performance. In addition, the fund implements a number of exclusion criteria in accordance with Ethos Chart. Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 7

8 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 are articulated. If appropriate, provide an example. Ethos applies a three-stage selection process for defining the eligible universe. 1st stage: Negative screening. In accordance with its sectorial exclusion criteria which are part of the investment policy, Ethos excludes companies with sales exceeding 5% in controversial activities/sectors from a sustainability and ethical standpoint. The excluded sectors are the following: armament, nuclear energy, tobacco, agro-genetically modified organisms, gambling and pornography (sectorial-based exclusions). Based on evidence, Ethos subsequently also excludes companies involved in serious ESG controversies, such as human and labour rights violations, serious environmental damages, gross corruption, etc. in particular companies whose responses to such controversies are not deemed adequate (norm-based exclusions). 2nd stage: Positive screening (best-in-class). This stage assesses companies based on a standard quantitative multi-criteria approach using approximately 150 ESG data points split into three main categories: Source: Ethos The weights of the three main categories are fixed but not those of the subdivisions which depend on the company s sector. Each company is given an ESG score based on the abovementioned criterion. The score takes into account industry specific ESG characteristics and positions the company with regard to its peers. Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 8

9 3rd stage: Consolidation of ESG evaluation An ESG rating is attributed to each company depending on its ESG score (quantitative) and its controversy assessment level (qualitative). The company s final ESG rating can be classified as follows: Source: Ethos The result of this assessment is a comprehensive evaluation of companies policies and management systems (G) with respect to the environmental (E) and social (S) challenges they face and therefore allows the identification of forward-thinking companies that meet positive standards of corporate responsibility with a the long term focus and are leaders in their industries. Companies with ESG scores equal to A+ /A- (i.e. about 50% of issuers of our research universe) are eligible for investment. On the contrary, a company with an ESG score lower than A- (B+ or B-), one that is involved in a major controversy (C), or is active in an excluded sector is not eligible for investment. 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. Screening criteria are reviewed on a regular basis in line with new ESG issues (e.g. industry standards, policy and regulatory developments). A change in a company s sustainability practice will affect its sustainability score. This will be taken into account at the next rebalancing process, which occurs at least annually. Ethos analysts also monitor on a daily basis ESG controversies that may negatively affect the assessment of companies in the portfolio. In case they identify major ESG controversies, they may decide, in accordance with the investment manager, to sell the stock. Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 9

10 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. Within the universe of companies that are rated A+/A- by Ethos, Pictet AM invests in those with the best financial quality characteristics with a view to constructing a portfolio that optimises the expected financial return for every unit of risk that is taken. Pictet s financial analysis process identifies companies whose quality, prudent approach and financial stability point to superior risk-adjusted return characteristics. The aim is to identify companies that are fit for economic survival over the long-term. The long-term financial analysis evaluates companies according to a set of proprietary fundamental indicators depicting a prudent (i.e. with strong balance sheet), stable (i.e. with low asset growth), shareholder friendly (with high ROE) and reasonably valued company. LONG-TERM FINANCIAL FACTORS: EXAMPLES The final step of the investment process is to create a well-diversified portfolio by choosing companies having attractive risk/return profiles within our final (ESG and financial) investable universe. Due to the market s general tendency to misprice risk, our portfolio has generally a defensive stance. Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 10

11 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 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. Please refer to Question 3a. 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)? In Switzerland, Ethos engages with companies on various ESG topics via the Ethos Engagement Pool (EEP) which was launched in 2004 and includes more than 100 institutional members. This unique vehicle pools the resources of Swiss institutional investors that aim to engage with Swiss companies on various ESG issues. The key themes encompassed climate change, environmental and social reporting, supply chain management, codes of conduct, anticorruption principles & policies, company's political donations as well as corporate governance issues pertaining to the board's composition and organization, board and executive remuneration and the shareholders general meetings. Every year, Ethos provides its members a detailed stewardship report, which includes quantitative and qualitative measures of success, as well as an analysis of further action, when required. Further information is available on 3d. Does (do) the fund(s) have a specific voting policy integrating ESG criteria? The fund systematically and actively exercises voting rights in accordance with Ethos voting guidelines which are based on accepted international and local codes of best practice. For more information on Ethos voting guidelines, please visit Ethos website, section Proxy Voting Service ( 3e. Does (do) the fund(s) engage in securities lending activities? No 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 Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 11

12 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. Pictet AM s compliance team ensures that the portfolio invests only in companies that are rated A+ or A- by Ethos ESG ratings, which Ethos analyst team also monitors on a bi-monthly basis. 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, no more than 6 months old, list of holdings of the fund(s). The following information is accessible on Pictet AM s website ( available in the fund section): Factsheet (monthly) Fund Manager s comment ( monthly) Fund holdings (quarterly) Annual Report Semi-Annual Report Prospectus The following information is accessible on Ethos website ( Factsheet (monthly) Annual Report Semi-Annual Report Prospectus Detailed voting activity report (quarterly) Fund holdings (monthly) Pictet-Ethos CH - Swiss Sustainable Equities European SRI Transparency Code Version 3:0 PAGE 12

13 Pictet Asset Management Please visit our website for further information This marketing material is issued by Pictet Funds S.A. 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 Funds S.A., Route des Acacias 60, 1211 Geneva 73, SWITZERLAND. 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 Funds S.A. 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.