Sustainable Investing Alerts Coverage: Nordea’s new fund, Sustainalytics GES acquisition, Eagle introduces new ESG strategy, Fitch launches ESG Relevance Scores, and Mirova’s new international ESG fund.
January 10, 2019
DUE DILIGENCE Alert: LOW
COMPETITIVE Alert: 1
Event: Nordea adds fund to its SICAV STAR equity suite.
Briefing Points: i) Nordea’s new SICAV mutual fund applies an ESG integration approach that employs sustainability quality standards plus “proactive engagement” by the portfolio manager, who “use dialogue and engagement to make a real impact.” The fund focuses on companies with the ability to comply with international standards for environmental, social and corporate governance. ii) The fund’s PM is John Swahn who currently manages the Nordia 1 – Global Stars Equity fund, an ESG fund using the same “high conviction bottom-up” selection approach; iii) Nordea’s STAR suite now has six funds using ESG integration, that “quantify and integrate ESG’ into its valuation model.
Affected Fund(s): Nordea 1 – North American stars Equity fund
Asset Classes: US Equities
Management Company: Nordea Asset Management (New York, NY)
DD Concern: Change to product-line
Marketing Considerations: The firm has solid experience in applying its ESG integration approach, and this is considered a positive from a due diligence standpoint. Applying the approach to a new asset class mandate should not be a concern. This experience is also a positive from a marketing standpoint, especially with domestic institutional clients.
January 9, 2019
DUE DILIGENCE Alert: LOW
COMPETITIVE Alert: 2
Event: Sustainalytics acquires “active ownership” service provider GES.
Briefing Points: i) Sustainalytics, an ESG and corporate governance research and ratings firm that operates globally with 17 offices worldwide upon the completion of its latest acquisition, has acquired GES (“Global Engagement Services”) a provider of fiduciary services to pension funds and asset managers; ii) GES’s fiduciary services focus on “active partnership” services including those related to fiduciary voting, impact and stewardship asset management strategies; iii) Both Sustainalytics and GES are European-based – GES has no US presence, while Sustainalytics does have domestic offices and clients.
Affected Fund(s): N/A
Asset Classes: N/A
Management Company: GES International (Stockholm, Sweden)
DD Concern: Portfolio management consistency
Marketing Considerations: The acquisition makes sense from a business integration standpoint as well as from a market expansion point-of-view, especially for non-US areas where the asset management industry is less developed. Domestically, GES’s services may benefit from out-sourcing to smaller and newer sustainable fund entries. An important due diligence question: could there be conflict of interest issues for a fund using the services of the 2 firms and/or how is such a conflict managed?
January 7, 2019
DUE DILIGENCE Alert: HIGH
COMPETITIVE Alert: 3
Event: Eagle introduces ESG strategy while expanding management expertise.
Briefing Points: i) Promotions for Eagle’s mid- and small-cap management teams, and an expanded sustainable role (and strategy) are instituted for the Carillon Tower affiliate; ii) Jason Wulff, who joined the firm in 2015 from Sentinel Investments, and Matthew Spitznagle, who has been part of Eagle’s team since 2006, will serve as lead managers; iii) There will be no changes to the portfolio’s investment approach and the team will continue to report to Court James, EVP of Carillon.
Affected Fund(s): Eagle SMID Cap ESG Select Strategy
Asset Classes: US Equities
Management Company: Eagle Asset Management (St. Petersburg, FL)
DD Concern: New untested mandate
Marketing Considerations: It is unclear how the firm’s small-mid cap strategy will be managed to account for ESG factors. The change appears to be designed, at least at this juncture, to establish a market presence. For those distributing the product, there is a need to clarification its ESG management approach and related details.
January 7, 2019
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 4
Event: Fitch offers scores measuring ESG impacts on credit ratings.
Briefing Points: i) Fitch’s new scoring system provides insights into how ESG factors impact the firm’s ratings decisions for individual credits; ii ) the new scores are not designed to make “value judgements” as to “whether an entity engages in good or bad ESG practices,” but only to address “fundamental credit analysis” affecting a credit rating decision; iii) initially the scores will cover about 1500 non-financial corporate ratings – approximately 22% of Fitch’s corporate ratings are influenced by ESG factors.
Affected Fund(s): N/A
Asset Classes: US and Non-US Fixed Income
Management Company: Fitch Group (New York, NY)
DD Concern: Change in risk profile
Marketing Considerations: This development represents yet another important step forward in addressing ESG in fixed income. In general, applying ESG risks and opportunities to bonds as contrasted to equities is more difficult due to the structure, complexity and diverse nature of bonds. For example, considerations such as whether to evaluate the issuer or the issue and the impact of time horizon on the risk profile of bonds given various maturities introduce higher levels of complexity for bond ESG evaluators. Also, unlike widely-held public and more actively traded equity and debt securities that are typically issued by individual issuers for which ESG scores, rankings or ratings are more likely to be available via third parties, this is may not be the case for private firms, smaller issuers or issuers in emerging markets. Fitch Ratings’ systematic approach should advance the process of addressing these issues and help to accelerate the ESG integration in fixed income. For additional details, refer to January 15
January 7, 2019
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 2
Event: MIROVA offers new international equity ESG fund.
Briefing Points: i) The new ESG international equity fund will be managed by Natixis – it is targeting a 25% allocation to emerging market companies; ii) the fund, which is a non-US alternative to MIROVA’s existing global equity strategy, will be co-managed by Jen Peers & Hua Cheng with Amber Fairbanks; iii) The fund is benchmarked against the MSCI EAFE index and favors companies abiding by the UN Sustainable Development Goals.
Affected Fund(s): MIROVA International Sustainable Equity Fund
Asset Classes: Non-US Equities
Management Company: Natixis Global Asset Management (Paris & New York, NY)
DD Concerns: New untested mandate
Marketing Considerations: The fund is being established in response to clients’ interest in a non-US strategy from the firm. This suggests that the firm’s strategy of building off of its existing sustainable product experience is paying off.
DEFINITION — ALERT RATINGS
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Due Diligence (“DD”) Alert: Ranks each identified sustainable fund event or development according to a three-point “call to action” scale that ranges from Low to High, defined as follows:
LOW: A preliminary review and evaluation is recommended, but no on-going monitoring or manager meeting is needed. Non-US fund offerings will typically be assigned Low Due Diligence Alert levels as these are largely intended for informational purposes and potentially these may have marketing considerations locally.
MODERATE: Near-to-mid-term review and evaluation is recommended along with a manager meeting.
HIGH: Immediate manager contact and meeting are recommended, plus detailed review and evaluation – scheduled on-going more detailed monitoring and follow-up manager meeting(s) are advised.
Marketing Considerations: Ranks the level of required response/urgency for each identified sustainable fund’s product development, sales, promotional or other strategic marketing event or development. The ranking scale is 1 to 5, where a rank of 1 indicates the lowest level of urgency, requiring little or no competitive response, to a rank of 5 that indicates the highest level of urgency, requiring immediate competitive and/or marketing and sales force response.
