Make your investment worthy,
make it responsible.
Looking far ahead
The OFI Group was founded in 1971 and embraced the values of mutuality and social economy very early on. Sustainable development is naturally rooted in these values and represents one of the group’s resolute undertakings.
The OFI Group’s SRI philosophy is based on the conviction that issuers incorporating environmental, social and governance (ESG) issues into their strategies offer better long-term growth prospects.
Alongside the usual financial research, a non-financial analysis of issuers provides a better understanding of the risks and opportunities at stake.
In addition, favouring issuers that incorporate ESG criteria helps to support and promote sustainable development while creating value for the long term.
We incorporate ESG research into our investment processes in order to assess the non-financial risks that issuers face, the aim being to improve the quality of our client portfolios and make them less volatile.
Just like private issuers, states face non-financial risks relating to their governance or social or environmental issues, too. By considering these risk factors, it is easier to grasp a state’s ability to face up to its undertakings and produce sustainable growth over the long term.
OFI AM’s SRI engagement in a nutshell:
OFI... committed to taking action
OFI is a signatory
The Principles for Responsible Investment (PRI) were established in 2006 by the world’s biggest investors with the support of the United Nations. They provide any financial institution that so wishes, with a framework offering guidance on how best to embrace responsible finance and helping them promote the development of these best practices.
As a signatory of the PRI since 2008, the OFI Group is committed to incorporating all aspects of sustainability into all its investment processes.
OFI AM has obtained the highest PRI rating, A+, for the past 3 years.
OFI is also committed to the following 6 principles:
- To factor ESG issues into its investment analysis and decision-making processes
- To be an active shareholder and incorporate ESG issues into its shareholder policy and practices
- To seek appropriate disclosure on ESG issues by the entities in which it invests
- To promote acceptance and implementation of the Principles within the investment industry
- To participate actively within the network to enhance its effectiveness in implementing the Principles
- To report annually on its activities and progress towards implementing the Principles
The Carbon Disclosure Project (CDP) is a survey conducted on behalf of 529 institutional investors managing over 96,000 billion dollars of assets at end-2018. It questions large corporations and city councils about how they incorporate climate change into their strategies, how they approach carbon restrictions and how well they perform in terms of greenhouse gas emissions.
Le The purpose of the CDP Water initiative launched in late 2009 is to encourage firms to publish detailed reports on the risks and opportunities of water management; it particularly targets those firms that are highly exposed to such issues.
Le The purpose of the CDP Forest initiative launched in late 2009 is to persuade firms to provide detailed reporting on the risks and opportunities relating to forest management.
The purpose of the Workforce Disclosure Initiative (WDI) is to make it easier to compare the social reporting provided by listed companies. It has surveyed over 700 firms in order to gain better insight into their workforce data.
The Institutional Investors Group on Climate Change (IIGCC) is a forum enabling investors to share information about climate change issues. It provides investors with a platform on which they can collaborate to promote public policies, investment practices and corporate behaviours that are viable for the long term.
The Climate Action 100+ is an investor initiative encouraging the world’s biggest greenhouse gas emitters to reduce emissions, increase financial reporting on climate-related issues and improve the governance of climate change. Investors participating in the initiative work with the companies in which they invest so that they minimise the risks of global warming and maximise opportunities to invest in green activities.
OFI is a member
The purpose of the International Corporate Governance Network (ICGN) is to promote the best standards of governance. It works through three channels: influencing public policy and getting involved in changing the regulatory framework; organising discussions between institutional investors, including building up a network; providing regular information and publishing the principles of governance.
The European Sustainable Investment Forum (Eurosif) is a European network whose mission is to encourage organisations to incorporate ESG criteria into their financial management strategies, primarily by lobbying European institutions, publishing research reports and organising events to promote awareness of ESG issues among investors.
The Transparency International association works to promote transparency and tackle governmental and corporate corruption. Its action is aimed at restoring confidence, securing justice, protecting whistleblowers, and encouraging companies and governmental groups to embrace ethical behaviour. Its discussions are centred around the integrity of public and economic life.
Avicenn is a general-interest association that monitors issues affecting citizens and provides independent and broad-based information about the implications of nanotechnologies for society. It strives for greater transparency and diligence in the field of nanotechnology.
The Forum pour l’Investissement Responsable (FIR) is a platform for fund managers, investors, social and environmental research specialists, consultants, unionists, academics and citizens. Their common goal is to promote socially responsible investment and ensure that more investments factor in the issues of social cohesion and sustainable development.
The Association Française de la Gestion Financière (AFG) is France’s asset management association; it represents and defends the interests of the portfolio management industry. It was set up in 1961 and covers all those in the asset management industry, operating either individually under mandate or collectively through undertakings for collective investment (UCI). Its members are portfolio management companies, boutique firms and subsidiaries of banking or insurance groups both in France and abroad.
In 2017, OFI AM signed a four-year research partnership agreement on corporate governance with the EMLyon Business School’s research centre, the Institut Français de Gouvernement d’Entreprise (IFGE). Corporate governance is key to a company’s performance. This is why OFI AM has made it a predominant feature of its non-financial (ESG) assessment methodology and a strategic priority. The OFI Group hopes this partnership will boost research efforts and improve knowledge of corporate governance.
The Access to Medicine Index organisation works to simplify access to medicine worldwide. The foundation is based in the Netherlands and publishes a “medicine index”, the first index to rank pharmaceutical companies according to the efforts they make to improve global access to medicine.
The Farm Animal Investment Risk & Return (FAIRR) initiative is a collaborative investor network which aims to raises awareness of the risks and opportunities relating to intensive animal production. FAIRR helps investors identify and prioritise these factors through cutting-edge research that they can then integrate into their investment decision-making and active stewardship processes.
20 years of non-financial research
For the past 20 years, the ESG team has covered a vast universe of issuers including listed and unlisted firms, small and large caps, and OECD sovereign issuers.
By adding an ESG dimension to our analysis of issuers, we are able to identify risks and opportunities that may have a material financial impact.
3,000 private issuers | OECD countries
Analysis to identify risks and opportunities
Non-financial research on private issuers draws comparisons between firms within a same business sector and identifies those that are most effective in managing the risks and opportunities surrounding sustainable development, including those defined in the UN Global Compact.
Such assessments involve a 4-stage process:
- Establishing a generic list of sustainable development issues
- Building a reference framework of the key issues facing private issuers; these are weighted according to their degree of exposure to risks relating to production, reputation, regulation and opportunity cost.
- Rating issuers based on a full ESG analysis. The research team will factor in the information provided by rating agencies MSCI, Vigéo, Proxinvest and REPRISK, and investigate how ESG criteria are incorporated into the firm’s business activity and behaviour. The Governance criterion is heavily weighted (between 40% and 70% depending on the business sector). The research team also monitors controversies that may result in a penalty being imposed on the issuer’s ESG rating.
- The calculation of an SRI score (out of 5) allows to reflect the issuer’s relative performance within its business sector. Issuers are then classified in one of the 5 categories:
For more details, read our Methodology for conducting non-financial research on private issuers.
ESG research specialists committed to responsible finance
The ESG research team has developed its own information system enabling it to process quantitative data automatically and carry out SRI assessments of portfolios. Fund managers have real-time access to ESG research and to the non-financial performances of their portfolios.
The research team gets involved:
- prior to stock selection: contacting issuers; conducting non-financial assessments; building bespoke frames of reference; advising fund managers;
- in portfolio monitoring: tracking issuers and controversies; preparing SRI reporting on a portfolio or selection of stocks;
- alongside firms: performing its duty as an active and committed shareholder; exercising voting rights at annual general meetings of shareholders.
Firmly committed to being active shareholders
The OFI Group’s Engagement policy aims to raise awareness among issuers of best practices in the areas of responsibility, corporate governance and sustainable development in the following ways:
- Concrete efforts to influence companies
Dialogue is essential as it encourages firms to incorporate ESG issues more fully, especially those relating to responsibility and governance.
- Our involvement in Annual General Meetings
We exercise all our voting rights at companies in our SRI portfolios. Whether on its own behalf or that of its actively managed UCIs, OFI AM applies the principles enshrined in the 1997 Ottawa Convention to ban anti-personnel mines and in the 2007 Oslo Convention to eliminate cluster munitions.
Our voting policy is based on eight fundamental principles:
- Respect for minority shareholders
- Accounting integrity, continuity and transparency
- Board independence, competence and diversity, and separation of the control and management functions
- A transparent, sustainable and fair executive-pay policy
- Fair and appropriate management of shareholders’ equity
- Strategic interest and purpose of mergers, acquisitions, demergers and asset disposals
- Transparent management decisions
- Transparency, coherence and strategic interest of decisions taken on environmental and social issues
Issuers can sometimes be involved in controversies that need to be factored in rapidly as they may pose a serious reputational and financial risk to the firm.
Substantially different practices make it possible to identify those companies that are more at risk than others. We then engage in close dialogue with the most controversial issuers. Discussions generally prove themselves to be highly constructive and enable us to draw up a review of best practices at the companies in question. We are thus able to assess the measures they each take following exposure to one or more controversies.
A penalty may be imposed on the issuer’s ESG rating as follows:
- a very severe controversy or series of severe controversies: penalty of 0.75
- a severe controversy or series of serious controversies: penalty of 0.5
- a serious controversy: penalty of 0.25
Advice and guidance
The OFI Group helps institutional investors draft their responses to the new obligations imposed by the LTEE (French law on ecological and energy transition); it does so by offering them ESG (Environmental, Social, Governance) advice, research and assessments of approaches to climate change.
Helping investors establish their SRI policy
Choosing the right ESG policy
We take two approaches to help investors establish an ESG policy that meets their needs:
- we rule out practices that are not consistent with the principles set out in the United Nations Global Compact as well as certain controversial activities;
- we adopt a positive selection approach based on an assessment of ESG criteria.
These are non-exclusive approaches and need to be combined with a shareholder engagement policy that the OFI Group offers to roll out on the investor’s behalf.
Assessing a portfolio’s non-financial credentials
ESG performance is described in detail and according to the issuer’s level of commitment to sustainable development issues (leader, actively involved, follower, uncertain, watchlist).
Monitoring reputational risk
Reporting is prepared on controversies affecting issuers in the portfolio (violations of human rights, environmental disasters, etc.).
Helping investors with their public and regulatory reporting
Investors are offered methodologies and tools to assist them with their regulatory and public reporting:
- determining which approach and factors will enable them to meet the requirements set out in the LTEE (French law on ecological and energy transition)
- drafting non-financial reporting for clients and/or regulators, market questionnaires, PRI procedures, etc.
We prepare periodic feedback on our discussions with issuers (particularly those involved in controversies) about sustainable development issues; this enables us to monitor the outcome of any measures taken.
Research on the energy transition
Helping investors measure carbon emissions and reduce the carbon intensity of their portfolios
Assessing a portfolio’s carbon footprint
By calculating financed emissions (tonnes of greenhouse gases per €m invested), we can measure the investor’s contribution to emissions and carbon intensity (the amount of CO2 emitted by a company relative to its revenue).
Analysing the risks and opportunities raised by climate issues
Two essential factors are examined:
- the impact that companies in the portfolio have on the environment, particularly the negative effects of their business activities (the “E” in ESG – SRI approach)
- the financial impact on companies in the portfolio of the physical and transition risks raised by climate change (an extension of the work and recommendations of the TCFD (Task Force on Climate-related Financial Disclosure) since 2017).
Measuring a portfolio’s “carbon risk”
Our in-house qualitative methodology makes it possible to take investment decisions according to whether an issuer is at risk from the energy transition or in a position to take advantage of the opportunities created by the goal to limit global warming to 2°C (i.e. firms involved in green technologies, renewable energies, etc.).
Ranking issuers that are best placed to benefit from the energy transition
Issuers (public and private) are ranked within each sector according to their carbon emissions and active involvement in the energy and ecological transition.
Our analysis is based on quantitative and qualitative elements alike. It enables us to build up a matrix that ranks issuers within each sector depending on their carbon emissions and active involvement in the energy and ecological transition.
This matrix, which can also apply to states, makes it possible to select the stocks that are best placed to benefit from the energy transition.
Analysing climate risks
Portfolios are examined based on physical climate risks and transition risks. Financial impact is also factored in, for instance when modelling transition scenarios (impact of regulations, technologies, etc.) and extreme weather event scenarios.
Full and transparent reporting for investors
The OFI Group strives to provide its clients with all the information they need to understand and take decisions on SRI issues.
Reporting on the range of OFI Responsible Solutions (OFI RS) funds is prepared monthly and includes the portfolio’s ESG (Environmental, Social and Governance) quality:
- a breakdown of issuers by ESG rating
- the percentage of the portfolio covered by ESG research
- the fund’s position in relation to its universe
For the OFI RS funds open to all investors adhering to the AFG’s Transparency Code,, the OFI Group undertakes to report on:
- the SRI investment criteria applied by the fund
- the ESG research carried out according to the type of issuer
- the selection methods used and the way they fit in with the overall investment process
- the funds that have obtained the French government’s SRI label with specific impact indicators, in keeping with the label’s specifications
The ESG research team also prepares sector-specific reports on key issues along with theme-based reports (on supply chain issues, gender parity on boards, nanotechnologies, etc.).
Make your investment worthy, make it responsible
The OFI Responsible Solutions (OFI RS) brand caters to all investors seeking a concrete approach to incorporate sustainable development issues into their investment strategies.
The OFI RS range of funds covers all the main asset classes and regions. It is built on three responsible investment approaches which can be combined.
- The « Best-in-Class » fund management strategy consists in selecting the most highly-rated companies within each sector based on ESG (Environmental, Social and Governance) criteria.
- Our approach of thematic investing consists in identifying companies that are actively involved in themes considered to promote sustainable development.
- Impact investing consists in investing in companies that have a positive and measurable impact on the environment and/or society while also delivering financial performance.
For instance, a portfolio may be built from a Best-in-Class perspective while also adhering to a specific investment theme.
OFI RESPONSIBLE SOLUTIONS RANGE
An SRI solution for every need
The OFI RS range obtains labels and wins awards on a regular basis. It includes funds carrying the French state’s SRI label, the Luxembourg Luxflag label and/or the Finansol solidarity savings label, alongside funds that have received the distinction of being rated by Climetrics for their climate performance.
ESG criteria can be incorporated into investments to varying degrees:
- OFI RS-labelled investments
Non-financial assessments are considerations that play a direct role in defining our investment universe and selecting our stocks. For OFI RS funds, all information can be found in the Transparency Code available in each fund’s documentation section.
- Dedicated investments
Some practices or business sectors may be excluded or promoted depending on the ESG criteria selected by the investor. A bespoke approach is required when developing and incorporating specific frames of reference.
- Investments incorporating ESG criteria
In the case of portfolios that have been built without any specific obligations, fund managers are provided with non-financial research carried out on the portfolio’s stocks in addition to the usual financial research. The aim here is to improve their understanding of these stocks.