Sustainable, Responsible &/or ESG Policy:

ESG criteria are fully integrated into our investment process and our SDG assessment is fully aligned with our ESG methodology as it based on business practices.

Our ESG/CAR industrial materiality rating looks at companies' business practices in relation to their broad ecosystem of stakeholders. We have developed a proprietary LO ESG Materiality Heatmap and Rating methodology, allowing our investment teams to focus on the environmental, social and governance dimensions that really matter to a company across its value chain. Our proprietary framework of 14 categories reflects the main dimensions of potential ESG opportunities and risks expositions across companies’ value chain. This includes upstream risks predominantly related to supply chain or natural resource usage; operational risks directly related to a company’s direct production and operational processes; and downstream risks related to the potential negative impact of products and services sold. The construction of our ratings uses raw data from a variety of specialized suppliers

We identify and rank the most material ESG dimensions for 158 GICS Level 4 sub-industries, captured in our LO ESG Materiality Heatmap. For each company, we calculate a score from 0 to 100 integrating materiality by overweighting the information that has greater significance based on their specific industry, and underweighting general information that is less relevant.

We embed our proprietary ‘Consciousness’, ‘Actions’ and ‘Results’ (‘CAR’) methodology which overweighs the ‘R’ component – ESG indicators linked to definitive outcomes. These scores, allows to attribute to each company an ESG rating from A+ to D based on their percentile positioning in their respective sector. The LO ESG Materiality methodology enhances our ability to monitor companies’ progress on the most relevant sector-specific issues for long-term sustainability, and engage with them on these material issues. The methodology differentiates the talkers from the doers and achievers.

Additionally, we map all the ESG metrics and data in our methodology to the United Nations 17 Sustainable Development Goals. This provides our investment teams with another important lens to consider the sustainability of companies’ business practices, to inform their engagement and allows us to provide clients with greater transparency on how aligned their portfolios are to the SDGs. We embed our LO ESG Materiality expertise in our SDGs ratings.

The ratings are deployed to all investment teams and are user friendly accessible through their usual cockpits and monitoring tools. Investment teams will use them differently depending on the type of strategy and asset class.

For high conviction strategies, ratings are used as sanity-check in order to avoid investing in companies with very poor business practices. Managers and analysts use these ratings as a base for dialogue and engagement.

The detailed components of the ratings are also available to portfolio managers for them to understand the weak and strong ESG characteristics of a company.

The ESG team will act as a support team for more information or drilling down.

Extra financial information is used alongside financial information to understand that companies are being understood from all aspects and that our selected companies are not exposed to material ESG issue that could prove detrimental to their ability to succeed over the long term. We could argue that such usage of ESG information is more linked to risk reduction.

Process:

The investment process includes screening the proprietary investment universe further with our quantitative tools. Here we reduce the universe to a subset of companies that have previously delivered Excess Economic Returns. The quant system also includes all of our proprietary ESG analysis and in a simple to see graph the analysts get a picture of the following information:

• Companies that are achieving Excess Economic Returns
• Whether a company has previously been a high achiever from an Excess Economic Return perspective
• If a company is showing signs of growing their Excess Economic Return into the future
• Companies that have strong fundamentals but have increased temporary their dependency to capital markets as they may have embarked into a material investment plan and/or made acquisitions
• A high level view of a company’s ESG ranking and other materiality-related metrics

All these elements are captured on a colour-coded chart, which once the analysts become familiar, is an extremely efficient way for the investment team to get a picture of the companies that could be of most interest for further qualitative analysis and review.

The tools are also capable of ranking stocks based on our Excess Economic Returns principles (a composite criteria combining capital efficiency (ROE/ROCE), external financing and ‘maintenance free cash flow’ yield). Companies displaying a mismatch between their economic returns and their market valuations (P/B or EV/CE) are highlighted as mispriced by the market, these companies are identified as having DEER (Discounted Excess Economic Returns). Additionally the tool identifies opportunities in companies that have been dragged down by cyclical downturns (candidates for recovery), and in companies that are falsely disregarded due to specific idiosyncratic events (structural events).

Results of this tool are back-tested for periods of 10-20 years and show significant outperformance versus the universe and benchmark with low turnover and considerably high coverage. Therefore, it creates an attractive basis for fundamental analysts to work from.

Once generated, this allows the team to concentrate their research efforts and build their preferences based on convictions and fundamental analysis. Fundamental portfolio managers / analysts conduct in depth company analysis to ensure the repeatability and sustainability of the economic returns of pre-screened companies.

As part of their business analysis, the investment team also uses additional financial information i.e. which contributes to building up their conviction on companies. ESG criteria are not binding within our stock selection process, however, we believe that ESG information provides valuable additional data for adjusting and complementing fundamental analysis. Our ESG consideration helps us to focus on companies with good practices or become aware of any particular difficult situation. In our view, it is important to integrate such a consideration as it enables us to avoid any controversies that could penalise long-term performance of a company. Responsible investing leads to more sustainable outcomes through market influence that drives companies to improve their business practices and results in better outcomes. We look at ESG through different lenses:

• Materiality ESG scoring: We look at how companies score in terms of environmental, social and governance factors which are material to their activities . We look at the raw data (115 data points), computing our own perspective on how companies score against Environmental, Social and Governance criteria.
• ‘CAR’ scoring : CAR, which stands for ‘Consciousness’, ‘Action’ and ‘Results’, sorts the same 115 data points to better differentiate between the talkers, the doers and the real achievers to give the team a much deeper understanding of genuine corporate sustainability.

Finally, the investment team conduct in-depth corporate strategy analysis to assess how business models are exposed to the implication of sustainability issues and their resilience to cycles.

Research: sustainability (ESG) research

In addition to standard financial information, the investment team also uses additional information, such as ESG criteria, which contributes to building up conviction. In understanding and integrating ESG information in our stock selection process, we are supported by a dedicated ESG Solutions team that sits alongside the investment team. This ESG Solutions team uses our state-of-the-art quantitative platform to construct a worldwide database of 115 ESG criteria, aggregated with its proprietary methodology, and distributed across our investment platform. Such detailed and granular information enables also the investment team to conduct an improved dialogue with companies on specific issues, conduct ad-hoc investigations and to monitor improving situations.

The implementation part refers to buying and selling securities using valuation, technical analysis and identified catalysts. They use both bulge-bracket and smaller, more specialised research firms. Not only do these provide the investment team with analyst access, but they can also be helpful in providing us corporate access, at conferences and on roadshows.

The SRI team update all ESG data on a weekly basis. Research on each company is updated at least once a year by our research providers. The usage of raw data allows us to have transparency and in depth look over improving situations. Portfolio managers are thus able to quickly and progressively monitor the ESG rating evolution of a company and reassess their decisions when necessary.

Furthermore, through our Stewardship approach and our dialogue with companies, we are engaged in a constant monitoring of invested companies and able to anticipate improving sustainability situations before it is reflected in reported ESG scores. This allows portfolio managers to have a deeper and clearer understanding of situations and allows them to decide more confidently and rapidly on their positions in invested companies.

SRI Exclusion/Restriction Policies

Although the Fund is not exclusion based, we apply the firm Social Responsible Investment exclusion and restriction policies as follows:

a.Firm wide exclusion policies 

LOIM has a corporate exclusion policy across all our funds in terms of:

• companies involved in controversial weapons
• financial instruments directly linked to essential food commodities (rice, soya, wheat and corn)

b.SRI Restrictions Policy

• Tobacco - companies deriving more than 10% (included) of their revenues from either production of tobacco products or retailing of tobacco products/services.
• Coal extraction - companies deriving more than 10% of their revenues from thermal coal extraction.
• Power Generation - companies deriving more than 10% of their revenues from coal power generation.
• Unconventional Oil & Gas - companies deriving more than 10% in aggregate of their revenues from any of tar sands, shale gas and oil and artic oil & gas exploration.
• Nuclear Weapons – companies in countries that did not signed the non-proliferation treaty (1968 - 1970)
• Gambling – companies involved in gambling activities
• Adult entertainment – companied deriving more than 5% of their revenues from adult entertainment activities

c.Controversies

In addition, for High Conviction Equities strategies, we look at companies’ exposure to and severity of controversies (classification of incidents following standards by United Nation Global Compact Principles) as a means of managing portfolio risk. Such events can be material due to reputational issues or legal and remediation costs, and potentially lead to lower market performance.

We apply a “Controversy Score” from 0 to 5 on each company, where 0 is no concern and 5 is a major concern. Our internal policy restricts trading in companies with any controversy level 5, where validation for a potential investment consideration must be obtained from the Equity CIO.

We will engage with companies that are included in the controversies’ basket, as a way to mitigate risks.

Resources, Affiliations & Corporate Strategies:

LOIM ESG/SRI teams

LOIM has over 20 in-house staff working on ESG/SRI as well as stewardship / responsible ownership activity.

The LOIM Sustainable Investment Research Strategy and Stewardship (SIRSS) team  is responsible for research and analysis regarding forward-looking sustainability challenges or traditional ESG issues, and for providing a centralised framework for our stewardship efforts. The team provides the data necessary to carry out appropriate climate-related risk oversight through engagement and voting.

Christopher Kaminker is the Head of the SIRSS team and reports directly to Hubert Keller, the Managing Partner of the Group in charge of LOIM. Maxime Perrin is the Head of the Sustainable Investment team and reports to Nathalia Barazal, Co-Head of LOIM (along with Jean Pascal Porcherot, the other Co-Head of LOIM).

In terms of organisation, the SIRSS team is responsible for identifying, analysing and mapping material sustainability challenges that are likely to affect the long-term viability of companies' business activities and models. The team analyses the exposure of different sectors and industries to sustainability challenges, and companies' susceptibility to those challenges, i.e. (1) zero-waste, (2) regenerative nature, (3) dematerialisation, (4) resource efficiency, (5) fair society, (6) secure society, (7) zero-emissions, and (8) adaptation and resilience.

The SIRSS team draws not only on third-party data suppliers but also develops and maintains proprietary, internal datasets to evaluate companies’ positioning with respect to sustainability challenges. The team also works to develop and launch new sustainable investment products and solutions and is responsible for internal verification of green, social and sustainability bonds. The team is also responsible for carrying out our strategic objectives on stewardship, working directly, or in industry collaborations, with investee companies to promote sustainable business practices and business models, and enhance long-term value for clients.

Within the SIRSS team there are 2 dedicated specialists, included and headed by Rebeca Coriat (Head of LOIM Stewardship), dedicated to proxy voting and engagement. In addition, the engagement team works closely with investment professionals in order to carry out engagements as this function is integrated. This refers to the complete engagement process, including engagement candidate identification, engagement research for internal memo, engagement program, with specific engagement objectives, conversations with investee companies, and engagement feedback into the engagement process

The ESG Solutions team (headed by Robert de Guigné) is a SIRSS sub-team that focuses on companies’ business practices and government sustainable policies.

The ESG Solutions sub-team is responsible for measuring various environmental impact metrics and the alignment of portfolios temperature with the Paris Agreement on climate change. It conceives, develops and distributes various ESG assessment tools such as business practices scorings, controversy indicators and impact metrics, including companies' carbon and water intensity. These tools are integrated by all our investment teams in their investment processes, through screenings, best in class, exclusions approaches for our systematic teams, and integration in the decision making process for our high conviction teams. The team collects comprehensive conventional and alternative data in order to assess companies’ sustainability through their business practices and their products/services offering. Our in-house scoring system verifies that companies’ business practices comply with the highest international ESG standards for their industry and measures their alignment with the United Nations Sustainable Development Goals (SDGs). Additionally, the team monitors the occurrence and severity of controversies with potential to affect companies and their stakeholders. Climate-related risk analysis is a cross-team collaboration between our investment teams and our dedicated sustainability experts, which allows us to blend systematic and fundamental analysis at all levels of the investment process. This collaborative approach and our innovative investment platform ensure that our investment team can make forward-looking investment decisions with the highest level of information and, therefore, conviction.

In addition, the Sustainable Investment team (headed by Maxime Perrin, and previously named CLIC Solutions team) works closely with the SIRSS team at the group level, helping to efficiently embed the relevant tools, metrics, and analysis in the LOIM’S investment products and solutions. The team was created by the LOIM CEO office as a unit responsible for supporting the LOIM’s ambition to be a leader in the sustainable investment field. The team supports this key strategic initiative across LOIM by providing leadership, coordination, and implementation support to all business units on sustainable investment.

The Sustainable Investment team has full responsibility on:

• investment processes: ensuring the integration of ESG/sustainability criteria and tools in the investment decision process;
• reporting: defining the most appropriate disclosures and reporting for each investment product and solution;
• regulation and internal organization & policies: collaborating in the definition of the internal organization and policies, in compliance with the evolving regulatory framework around sustainability;
• communication and content: narrating LOIM vision and strategy on sustainability; and product range, helping develop and launch new sustainable investment products and solutions.

Industry collaboration

LOIM closely monitors all regulatory frameworks related to investment advice and products. Active memberships in various national and international financial trade associations enable the firm to provide knowledgeable inputs, voice its opinions, and embrace business innovation and regulatory changes promptly. Through both LO Group and its operational entities, LOIM is part of:

• Signatory of UN PRI: 2007
• UN Global Compact: 2018
• Certified B Corporation:2019
• Founding member Circular Bioeconomy Alliance: 2020
• Signatory of the UNEP Principles for Responsible Banking: 2020
• Active member of Sustainable Finance Geneva (SFG): 2008
• Founding partner and active member of Swiss Sustainable Finance (SSF): 2014
• Founding partner and active member of the Global Impact Investing Network’s (GIIN) Investors Council: 2012
• Member of the Institutional Investors Group on Climate Change (IIGCC): 2018
• Signatory of the Carbon Disclosure Project (CDP) on Climate Change, Forests and Water: 2004
• Signatory of the Task Force on Climate-Related Financial Disclosure (TCFD): 2019
• Participant in Climate Action 100+: 2020
• Member (Investors) of the Green Bond Principles, Social Bond Principles and Sustainable Bond Principles
• Member of the Energy Transitions Commission: 2019
• Supporters of the UK Stewardship Code
• Declaration of acceptance for Responsible Institutional Investors (Japan’s Stewardship Code)
• Finance for Biodiversity Pledge member: 2020
• Business for Nature member: 2020
• Founding members of the Natural Capital Investment Alliance: 2021
• Signatory of the UK Stewardship Code: 2021

Additionally, Lombard Odier participates in several key collaborative initiatives to encourage policy makers and regulators to take ambitious action on climate change, including promoting the adoption of the TCFD reporting standards. These include:

• Signatory of the 2019 Global Investor Statement on Climate Change
• Signatory of the 2020 letter urging the US Securities and Exchange Commission to preserve shareholder rights
• Endorsed the 7 Priorities to Help the Global Economy Recover from the Energy Transition Commission in 2020
• Signatory of the 2020 open Letter to EU Leaders From Investors on a Sustainable Recovery from COVID-19

SDR Labelling:

Not eligible to use label