Working with new challenges and investing in tomorrow’s leaders

Socially Responsible Investing (SRI) is a multi-faceted and constantly changing concept. It lies at the junction between the expectation of returns and the expectations of society. SRI naturally focuses on long-term performance, factoring in all the risks and opportunities to which businesses are exposed. We strongly believe that sustainable development must be one of the main criteria used to identify the leaders of the future. ESG (environmental, social and governance) criteria lie alongside financial analysis at the heart of SRI. They also create value in themselves.

Conviction-based SRI

We aim to offer an innovative and exclusive approach which will adapt to cover new factors as they emerge. Consequently, our Responsible Investor policy distinguishes between two concepts: Corporate Social Responsibility (CSR) and the Transition to a Sustainable Economy. This is the result of an in-depth analysis of economic and social trends combined with recognized expertise in SRI.

In 2017, DNCA Finance signed the UN Principles for Responsible Investing (UNPRI) to place our approach with a structured framework and enable us to take part in market debates as a long-term active investor. This clearly demonstrates the importance we place on the responsibility we as fund managers have not only to our investor clients but also to the businesses we finance.

Eric Franc, CEO

CSR goes mainstream
Established over the last two decades
In the early 2000s, less than 10% of listed companies published a CSR report. Similarly, few of them had an internal department dedicated to sustainable development. By 2010, the proportion had reached 50%, and roles such as Sustainable Development Director and HSE Director had appeared. Today, over 3,000 companies across the globe, some of them very small, release an integrated CSR report and have a dedicated sustainability role at the highest echelons of management (Executive Committee and Board level). It is clear, therefore, that the transparency of CSR report information is no longer an issue for SRI.
Across all sectors, CSR is the canary in the coal mine
CSR acts as a crucial early warning system. The numerous indicators presented in the annual reports offer an alternative way to assess the health of a company. They are now directly comparable, within a sector and above all over time. Changes in certain indicators offer additional information which often has yet to filter through to the financial statements. In this context, we view CSR as an outstanding source of information to help us foresee the risks and opportunities companies will face, in particular in their interactions with their stakeholders: employees, suppliers, customers, local communities, shareholders, etc., regardless of the sector in which they operate.
Unexpected increases in staff turnover, workplace accidents or absenteeism may be early indicators of discontent or deteriorating relations staff-management relations which could affect competitiveness or financial performance.

Léa Dunand-Chatellet, Fund Manager, Head of the Responsible Investment department

Measuring CSR
RESPONSABILITY TO
SHAREHOLDERS
  • Protection of the interests of minority shareholders
  • Independence of the Board and its committees
  • Accounting risks
  • Management quality
  • CEO remuneration
  • Quality of financial communications
ENVIRONMENTAL
RESPONSIBILITY
  • Environmental management
  • Regulation and certification
  • Climate policy and energy efficiency
  • Politique climat et efficacité énergétique
  • Biodiversity impact and externalities
SOCIAL
RESPONSIBILITY
  • Company culture and HR management
  • Personnel-management relations and working conditions
  • Health and safety
  • Attractiveness and recruitment
  • Training and career management
  • Promotion of women
SOCIETAL
RESPONSIBILITY
  • Product quality, safety and traceability
  • Supply chain management
  • Respect for local communities and human rights
  • Innovation capacity
  • Customer satisfaction
  • Data privacy
  • Corruption and business ethics
  • Fiscal coherence
From Sustainable Development to the Transition to a Sustainable Economy

We believe it is vital to take a long-term view when financing the economy. As responsible fund managers, our role is to select the companies that are best placed, both strategically and economically, to meet the challenges of the future. We are convinced that the ability of these businesses to foresee developments in their markets is crucial to establishing or maintaining leadership.

The sustainable economic transition is overall an opportunist approach. Our work focuses on identifying relevant themes and thereby selecting the companies that are exposed to them. Societal trends evolve constantly, and we therefore review our list of themes each year. By taking a practical and innovative approach, we aim to maintain the most complete understanding possible of performance drivers.

By identifying companies’ exposure to the transition to a sustainable economy, we can ensure that our portfolios are strongly placed to produce excess returns.

Léa Dunand-Chatellet, Fund Manager, Head of the Responsible Investment department
Assessing contribution to the Transition to a Sustainable Economy
DEMOGRAPHIC
TRANSITION
  • Inclusion of seniors
  • Inclusion of emerging populations (BoP)
  • Access to education
  • Access to housing and comfort
  • Security
  • Public transport, regulation of traffic
  • Home services
HEALTHCARE
TRANSITION
  • Healthy eating, sport
  • Medical diagnostics
  • Fight against endemic diseases
  • Caregiving
  • Medical Robotics
  • Access to healthcare (BoP)
  • Medicine and cutting-edge medical research
ECONOMIC
TRANSITION
  • Infrastructure development
  • Transition to digital communication
  • Certification, quality and traceability of products
  • Efficient logistics
  • Sustainable tourism
  • Network access
  • Flow transparency and security
  • Access to financial services
LIFESTYLE
TRANSITION
  • Product lifecycle lengthening
  • Eco-design
  • Production equipment efficiency
  • Circular economy
  • Collaborative consumption
  • Digitization
  • Artificial intelligence
  • Sustainable mobility
ECOLOGICAL
TRANSITION
  • Energy storage
  • Renewable energy
  • Energy efficiency
  • Water treatment
  • Recycling
  • Biodiversity
  • Sustainable agriculture
  • Ecological mobility
A proprietary analysis model and in-house research
ABA, Above & Beyond Analysis
We are fully committed to developing proprietary models built on our own expertise, and to ensuring that we add tangible value when we pick stocks. DNCA’s ESG analysis model is true to this principle, and has been developed to offer ratings constructed entirely under our control. These ratings are for the most part based on information collected from companies. Conversations with directors and site visits deepen our understanding of the companies and represent an outstanding source of value added.
Continuous monitoring of discrepancies
We aim to compare the principles laid down by companies with what happens in practice, thereby creating a database of alerts for fund managers. We analyse each discrepancy in detail and produce a report. When this analysis produces tangible results, it is used as an advance warning system and not to automatically take sanctions. Given the international dimension of business and the large amount of information available, we have to distinguish isolated cases from major alerts for each situation.
A policy of involvement and dialogue with companies
Because of our conviction-based management approach, we pick stocks based on an in-depth analysis of a company’s fundamentals. Discussions with managers lie at the heart of what we do. Similarly, when conducting extra-financial analyses, we seek whenever possible to meet with companies to discuss topics relating to responsibility and the transition to a sustainable economy. As a consequence of this, we are active investors and conscious of the importance of exercising our general meeting voting rights.

Our SRI funds are grouped together in the “Beyond” range. We ensure we select responsible, sustainable stocks by including ESG criteria when analysing companies, defining the investment universe and then picking stocks for the portfolio. The same two-stage management process is used for all “Beyond” funds:

  1. Stocks which present corporate responsibility risks are excluded. This filter complies with the government-backed SRI label.
  2. Stocks are picked for the positive impact they have on the transition to a sustainable economy.

We aim to offer as much transparency as possible regarding Corporate Responsibility and the Transition to a Sustainable Economy. We are committed to sharing our expertise in this domain, where standards are still being set and the path of future development is not clearly defined.

Consequently, measuring impacts and reporting specific indicators is a priority, especially for SRI portfolios. There are numerous obstacles, mainly relating to the definition of criteria and their relevance, and data access and reliability. It is nevertheless vital at this stage for us to actively contribute to developments in this area.

At DNCA, we have always regarded governance as a decisive criteria. Today, it would be unimaginable to invest in a company without verifying the quality of its directors and supervisory bodies, or how it protects the interests of its minority shareholders.

Jean-Charles Mériaux, CIO