Equity World Global Goals Strategy
Play a part in achieving the Sustainable Development Goals
THE STRATEGY IN A NUTSHELL
In a world where the necessity to tackle environmental and social challenges keeps strengthening, the investment landscape has been rewritten with all players in the investment value chain shifting their focus towards long-term sustainable solutions.
The Equity World Global Goals strategy offers investors more opportunities to take part in this transformation.
The strategy targets a diversified selection of world developed companies that display high Environmental, Social and Governance (ESG) standards and a positive financial outlook, while contributing to the achievement of the United Nations’ 17 Sustainable Development Goals (SDGs).
SCREENING OF CONTROVERSIES AND ESG CRITERIA
The strategy selects companies with high ESG standards using the Vigeo Eiris ESG score and BNP Paribas Asset Management ESG screening:
VIGEO EIRIS GLOBAL ESG SCORE
Vigeo Eiris rates companies using a methodology that is compliant with international conventions and treaties (ILO, OECD, UN). It is based on 38 environmental, social and governance issues (“ESG”) grouped in 6 domains, graded on a scale from 0 to 100. Only companies with a score greater or equal to 30 and ranked within the top 2/3 of their sector and zone can be selected.
Companies with a significant involvement in the extraction or production of coal, tar sands or oil shale are excluded from the index.
NO INVOLVEMENT IN CRITICAL CONTROVERSIES
Concerning the environment, the fundamental conventions of the International Labour Organization and the International Bill of Human Rights (IBHR)1.
NO MAJOR INVOLVEMENT IN CONTROVERSIAL ACTIVITIES
Companies with a major involvement in alcohol, armament, gambling, nuclear related activities, pornography and tobacco cannot be part of the index.
BNP PARIBAS ASSET MANAGEMENT ESG SCREENING
BNP Paribas Asset Management rates companies on a scale from 1 to 10 (10 being the worst score) based on ESG criteria. Companies with a score at or above 9 are automatically eliminated.
Source Vigeo Eiris, 2018.
1Consisting of the Universal Declaration of Human Rights, the International Covenant on Economic, Social and Cultural Rights, and the International Covenant on Civil and Political Rights and its two Optional Protocols.
POSITIVE FINANCIAL OUTLOOK
Over the last century, some of the greatest and most well known asset managers – the financial markets “Gurus” – have built their career on how (and how not) to successfully invest in equities over the long-term. Investment Gurus such as Warren Buffett or Peter Lynch have delivered consistently high performance over a long-term period, thanks to investment principles based on companies’ fundamentals. These principles are used by the strategy to select stocks with a positive outlook on three dimensions:
Measured by assessing whether a company is sufficiently profitable given the resources required for it to run its operations.
By analysing the prospects of companies in the future.
By looking at the “value for money” of the selected stocks.
Each company obtains a financial score based on these criteria and the best 50% are selected. Stocks which are deemed attractive in terms of their ESG proposition, but with unattractive fundamentals will be excluded from the selection.
PORTFOLIO OPTIMISATION AND DIVERSIFICATION
A tight risk control is implemented within the strategy in order to limit risk and offer an effective diversification of the portfolio, which must satisfy the following constraints:
The portfolio should maintain an expected tracking error below 3% versus its global equity benchmark.
The weight of each region and sector should not differ by more than 30% compared with their respective weights in the benchmark. The weight of each company in the portfolio should not exceed 1%.
GIVING MORE WEIGHT TO COMPANIES WITH HIGH SUSTAINABLE STANDARDS (SDG CHAMPIONS)
SDGs have overlapping relationships which makes it difficult to quantify the contribution of corporations. For this reason, Vigeo Eiris carries-out an extra financial assessment of companies using its Equitics Methodology, defining distinct areas for corporate action. Contribution to the SDGs is assessed on the companies’ product offering and behaviour in favour of sustainable development. The best performers are qualified as “SDG Champions” and are given a higher weight in the portfolio, while respecting the previous criteria.
In order to be qualified as an SDG champion, companies must have a minimum Vigeo Eiris ESG score of 50/100 and be the first of their geographical zone and sector with regards to at least one of the 3 following criteria:
Measuring the percentage of business activity dedicated to sustainable products.
Measuring companies’ behaviours towards the achievement of the SDGs.
Measuring the progression of the companies’ practices score.
This process is replicated on a monthly basis.