Sustainable finance : “Today, we have a “high-impact” fund range based on 20 years of ESG research”

How has the approach of Groupama AM in the field of sustainable finance evolved over the last few years?

Aurélie de Barochez: With the constantly growing demands of investors, the strict requirements of regulators, as witnessed in the entry into forces of the SFDR^G (Sustainable Finance Disclosure Regulation), and taxonomy, the ambitions of the asset management industry in the field of sustainable finance are visibly evolving. These unprecedented conditions confirm the three major guiding principles that we have adopted since 2018 to drive practical change in our approach to sustainable finance: accelerate the systematic incorporation of ESG criteria in investment analyses and decisions, respond to the increasing demands of customers-investors and, finally, innovate to stimulate progress and renewal in our product range.

How is ESG incorporated in practice?

Over  the course of 20 years, we have created a methodology for cross-disciplinary integration of ESG, covering all of our management teams, so that portfolio managers have the benefit of the financial and ESG recommendations formulated by our research teams. These recommendations are ultimately integrated by the management teams in their investment decisions.

The systematic formalization of this approach was one of the targets we set ourselves in 2018. We have made the process of integrating ESG analysis into financial analysis clearer and more readily understandable. Also, to make ESG analysis easy to use by our fund managers, we have established new proprietary information systems that give them access to the ESG ratings of more than 5000 issuers in our investment universe.

In addition, we have deployed core ESG training for all our managers. In 2019, each manager had an average of 10 hours of training to achieve various objectives, such as clear understanding of the key concepts (identification of ESG data sources and the capability to identify key ESG issues) and the ability to evaluate their implications for financial elements. Since 2020, these training courses have focused on precise subjects. For example, for the last 6 months, managers have undertaken several training sessions on the regulatory aspects of ESG, especially the consequences of the AMF doctrine, the SFDR^G and taxonomy.

This internal training programme has also been deployed to all our teams. Our goal as an asset management company committed to ESG issues depends on the implication of all our teams. These training courses have laid the foundations of a common ESG culture.

 

Have you established a policy of sustainability risk monitoring?

Yes, absolutely, and we did so even before the SFDR came into force to make it an obligation! Back in 2019, we set up a dedicated committee, the Sustainability Risks Committee, chaired by our Risks Manager. This Committee has a two-fold mission – to validate the lists of securities concerned and to monitor our exposures to these risks and the initiated disengagement processes.

At Groupama AM, we monitor two types of ESG risks – “major ESG risks”, which concern companies implicated in controversies, as defined by the recurrence of the relevant controversy, its level of gravity and whether or not the response of the company to correct its action is considered appropriate. We also apply the “major risk” classification to companies with extremely negative governance, i.e. with a negative score on more than half of the criteria of the “Governance” pillar.  These securities are excluded from the ESG portfolios. For all the other funds, the managers receive a pre-trade alert and must be able to explain their investment choice.

We have also established a “coal exclusion policy”, which we have reinforced over the last few months.

 

What is your perspective on the demand from customers-investors for responsible investment?

In less than a decade, responsible investment has been largely generalized in the asset management industry. However, after an initial phase of proliferation of supply, we are now witnessing a cycle of formalization, labelling and enforcement of compliance, especially with the entry into force of the SFDR^G: asset managers can no longer content themselves with declaring their commitments to ESG but now have to demonstrate this commitment structurally and operationally, from fund prospectus to risk management.

We are observing increasing investor demand for made-to-measure services that meet specific requirements. This can concern certain aspects of the voting or shareholder engagement policy or the transparency of ESG information. We have industrialized several ESG report formats with one overriding condition: the data must provide an instructive spotlight for the customer. That is why we prioritize the quality of information over its exhaustiveness.

 

How has your range of investment solutions evolved?

Sustainable finance at Groupama AM is based on a general ESG integration approach and on specific ESG funds, for which we are accelerating our label certification programme. In this context, six additional funds have recently received the French “ISR” label (ISR is the French acronym for SRI, Socially Responsible Investment). Our aim is to propose one flagship ESG or SRI fund per management team and asset class. The thinking behind our product range is motivated by the aim that has driven Groupama AM for two decades – to position responsible investment in line with our vision of long-term investment and the generalized integration of ISR-ESG criteria.

 

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