Summary
ESG stands for Environmental, Social, and Governance and refers to three groups of metrics that assess the sustainability of a company in terms of relationships with the environment and the different stakeholders, and in terms of corporate governance. Investors are increasingly applying these non-financial factors as part of their investment analysis process to identify material risks and growth opportunities.
Valeur Group is signatory of Principles for Responsible Investment (PRIs) by United Nations through Valeur Capital Ltd and it follows principles of sustainable investing such as incorporating environmental, social, and governance factors (ESG) into investment decision-making process, assessing ESG risk within the investment process and seeking appropriate disclosure on ESG issues by the entities in which Valeur Group invests.
Beyond the fundamental analysis, Valeur Group constantly monitors all the aspects linked to the ESG themes. In fact, Valeur Group firmly believes that incorporating environmental, social and governance criteria to more traditional fundamental analysis leads to better risk-adjusted investment returns. This integrated approach allows Valeur Group to obtain a differentiated view of companies, considering risks and revealing return opportunities normally neglected by the traditional fundamental analysis.
Conceptually, a portfolio composed by companies that adopt sound ESG rules, should be well equipped to master the challenges of the future and, therefore, should generate superior long-term performance while limiting risks, which is in line with the values of Valeur Group.
No sustainable investment objective
Some of the financial products managed by Valeur Group promote environmental or social characteristics but do not have a sustainable investment as its objective.
Environmental or social characteristics of the financial product
Some of the financial products managed by Valeur Group, as outlined in the Valeur Group’s ESG policy, promote broadly environmental and social characteristics thanks to the investment in portfolios with an overall ESG score above the market average value. The majority of portfolio constituents represent, therefore, examples of best practice in the ESG world.
Investment strategy
As outlined in the Valeur Group’s ESG policy, Valeur Group has developed a method to measure the ESG portfolio score and has established some criteria to meet in order to consider a fund as sustainable, identifying different and specific ESG scores providers for each of the three main investment categories in which financial products are invested in (Fixed Income Investments, Equity and Investment Funds, Government Bond) and establishing a minimum target threshold for each of them. Please refer to the Valeur Group’s ESG policy for more details.
Proportion of investments
As per the Valeur Group’s ESG policy, with regards to those investments that may be subject to a rating, at least 65% of the portfolio constituents investing in those asset classes must be subject to a rating of the selected ESG providers.
Monitoring of environmental or social characteristics
The portfolio management team with the support of the risk management function constantly monitors the evolution of the portfolio constituents in relation to environmental and social characteristics, being ready to any change needed to preserve the overall ESG score of the portfolio. In details, with reference to single instruments the risk manager performs a regular monitoring of the instruments which show the highest ESG risk.
Finally, in case the risk manager recognizes a violation of the procedures or believes that the ESG risk of the portfolio is excessive, he can recommend, at any time, the sale of the instruments which are not in line with the defined sustainability objective.
Methodologies
As previously outlined, the financial products managed by Valeur Group promote broadly environmental and social characteristics thanks to the investment in portfolios with an overall ESG score above the market average value. The overall score is assessed as weighted average of the percentage deviations between the investment class scores and the defined thresholds. Please refer to the Valeur Group’s ESG policy for more details regarding the calculation methodology.
Data sources and processing
As per the Valeur Group’s ESG policy, ESG scores used to assess the overall ESG score of the portfolio differ depending on the type of the investments. With regards to Fixed Income Investments, Valeur Group considers the ESG scores provided by Sustainalytics and RobecoSAM, while with reference to Equity and Investment Funds, ESG ratings provided by MSCI Ratings are used. Finally, in case of Government Bonds, ESG Ratings provided by RobecoSAM at country level (Country ESG Score) are considered. Please refer to the Valeur Group’s ESG policy for more details regarding the data sources and processing.
Limitations to methodologies and data
ESG scores, at the base of portfolio valuation, can vary between ESG data providers. To mitigate this limitation, Valeur Group adopted three measures: (i) comparison of the ESG scores of the portfolio against a benchmark whose scores are computed by the same data provider, so that the comparison is relevant; (ii) employing different data providers, since the ESG valuation approach is different; and (iii) averaging the deviation of different providers, so that the final score is not dependent to one single supplier.
Due diligence
Valeur Group conducts both Fundamental and ESG analysis to all underlying assets and systematically reviews its assessment. Regarding ESG valuation, attention will be paid to the evolution of the scores, with a particular focus to those that show a deterioration.
Engagement policies
With regards to engagement policies, Valeur Group is mainly involved through proxy voting, considering ESG criteria in its assessment.
Designated reference benchmark
Valeur Funds do not have a specific ESG reference benchmark.
For more details regarding Valeur Group’s ESG approach, please read the Valeur Group’s ESG policy (LINK).