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ESG statement

Our Sustainable Investing Philosophy

Society is faced with multiple global threats including climate change and biodiversity loss, acute levels of social inequality, and growing doubts over business resilience, exacerbated by the Covid-19 pandemic. During these unprecedented times, attitudes and perceptions around the management of our valuable resources, including people, are radically shifting. Shared challenges require a collective response and we believe that growing recognition of this will catalyze society, consumers, businesses, and governments to favor products, services and policies that promote a more sustainable future.

At Lazard we believe that a more holistic assessment of value creation across multiple stakeholders (employees, customers, suppliers, communities and the environment) will ultimately help to enhance long-term financial returns.

Our sustainable investment approach rests of the following three pillars:

  • Collective Responsibility for Integrated research: as a research-driven organization, we believe our biggest strength is our ability to cross-pollinate the knowledge of our subject matter experts across the firm to ensure we optimize the value of their industry and regional insights.
  • Impactful ownership: as active managers, we are committed to fully exercising our role as stewards of capital. We believe this entails purposeful engagements with companies and sovereigns, intentional proxy voting, and providing clients with customized solutions that meet their evolving needs.
  • Commitment to Continuous Innovation: the pace of change in this space is fast moving and we believe it is also important to ensure that we are contributing to the wider adoption and advancement of more sustainable practices across the industry.

At Lazard, we see the integration of sustainability considerations as everybody’s job. All of our 250+ investment professionals are responsible for incorporating sustainability related risk and opportunity assessments into their work. We also strive to embed sustainability in our governance, our research, portfolio management, risk, compliance, technology and client facing functions.

Our Co-Heads of Sustainable Investment are responsible for setting the over-arching strategy and updating Lazard’s Investment Council1, Oversight Committee2 and Management Committee on implementation and progress across the firm.

1The Investment Council is designed to ensure the effectiveness of LAM’s research and investment platforms.
2The Oversight Committee oversees LAM’s strategies and establishes reporting lines for investment professionals on portfolio management teams.

ESG case studies

Research from the Investor Forum’s in the UK suggests that Chairmen find it difficult navigating the different and often conflicting investor perspectives. Boards look to investors to set a proactive agenda for engagement. In November 2019 Lazard Asset Management participated in Cairn Energy’s annual board workshop to lead a discussion on investor expectations of energy companies in the context of a transition to a low carbon economy. The objective of the workshop was to provide the Board with insights as to how the investor agenda is being influenced by both clients and regulators and also to consider initiatives to strengthen the governance of risks and opportunities associated with the energy transition, such as the TCFD.

The discussion was led by our global energy analyst, Neil Millar and our Co-Head of Sustainable Investment & ESG, Jennifer Anderson. The Lazard team gave an investment perspective on how the evolving dynamics of the energy transition are impacting the cost of capital for companies in the sector, the frameworks we use to factor in a price for climate change through carbon pricing and the risk of stranded assets under different carbon pricing scenarios. The key outcome of the board’s workshop was the Board’s decision to elevate energy transition policy from an emerging risk to a principal risk to the business. This change will require senior managers to develop short-medium and long-term actions to this address this risk appropriately. Further details are available in Cairn’s Annual Report 2019.

Please find see the following link for a recent case study on the COVID-19 virus’s impact on:

 

Links and documents
– ESG at Lazard
– RI TRANSPARENCY REPORT 2019
– COVID-19 Highlights Fragilities of the Gig Economy
– Sustainability Talks: An Audience with James Close

Funds to watch

Name ISIN Domicile Description
Lazard's Global Sustainable Equity Select Fund Ireland

Lazard’s Global Sustainable Equity Select Fund invests in companies where opportunities created by the move to a more sustainable world should materially support consistently high or increasing financial productivity. We focus on attractively valued companies with sustainable management practices that are listed in developed or emerging markets. The Fund can help investors achieve both their sustainability aspirations and their investment objectives.
The Lazard Global Thematic Equity Fund Ireland

The Lazard Global Thematic Equity Fund has a style-agnostic investment discipline focusing on long-term investment returns with low absolute risk. The Fund is designed to benefit from structural change in industries and companies anywhere in the world. The strategy integrates a Sustainability Framework for assessing multiple aspects of business risk, including ESG inputs. The portfolio is based on a series of 8 to 12 investment themes, not the benchmark.
The Lazard Global Thematic Equity Focus Fund Ireland

The Lazard Global Thematic Equity Focus Fund has a style-agnostic investment discipline focusing on long-term investment returns. The Fund is designed to benefit from structural change in industries and companies anywhere in the world. The strategy integrates a Sustainability Framework for assessing multiple aspects of business risk, including ESG inputs. The portfolio is based on a series of 3 to 6 investment themes, not the benchmark.

ESG DDQ

Does the investment manager have a policy addressing its approach to the incorporation of ESG factors within the investment process? If there is no policy, please explain why.

At Lazard Asset Management, we see the integration of human and natural capital assessment as the bedrock for sustainable investment. Our own journey has shown us that it is highly contextual and can be sector specific, regional, or entirely idiosyncratic. To better assess materiality and understand how sustainability considerations may impact financial performance, we are evolving our research process to ensure our investment professionals can contextualize the issues most pertinent to their securities, sectors, regions and portfolios.

We conduct global industry workshops where our equity, fixed income and commodities investment teams debate and map the material human and natural capital issues most relevant and material to their coverage.

This supports Lazard investment professionals in having differentiated perspectives on their sectors that may feed into company models and valuations, thereby helping them to prioritize topics for engagement with company management and with ESG-related proxy voting. In 2019, our global sector analysts developed over 45 sustainable investing frameworks based on our collective assessment of the most material issues facing our portfolios.

Our internal proprietary research is supported by our subscription to several service providers including Sustainalytics and Trucost. These resources help our investment professionals gain a better understanding of a company’s practices and the risks and opportunities that they may present to our current and potential portfolio holdings. While these service providers do not cover every company in our investment universe, they provide a comprehensive tool to enhance and supplement fundamental research and analysis.

https://www.lazardassetmanagement.com/docs/-m0-/669/LazardESGPolicy_en.pdf

How regularly do you engage with companies and how do you ensure successful outcomes from your engagement?

Our fundamental investment process means that we are regularly meeting with the companies we own in our portfolios is an important part of our investment process. Our investment professionals conduct over 3,800 meetings annually with company management in order to understand how companies are managing their business and efficiently allocating capital. As part of these meetings, investment professionals may engage with company management on material human and natural capital as well as governance related matters.

The responsibility for all company engagement and voting decisions rests directly with our investment teams. Lazard believes that our portfolio managers and analysts are in the strongest position to evaluate and incorporate insights from engagement into investment decisions.

As such, they conduct engagement activities themselves, rather than delegating this to stewardship specialists who tend to conduct their engagement activities separately to the investment team.

This helps to ensure that the outcomes of our engagements can be fully integrated into our investment processes. We think this is an important differentiator as we believe the most effective shareholder engagement is undertaken by analysts and portfolio managers that directly own the companies in their portfolios.

Please explain how you manage risks and opportunities from climate change in your clients’ portfolios.

We believe that climate change is one of the defining issues of our time. Developments in this area are likely to be frequent and hard to predict but clients of Lazard Asset Management LLC (“LAM”) entrust our firm to steward their assets on an ongoing long-term basis. Scientific evidence suggests that the world may experience significant negative effects due to climate change and consequently LAM is evolving its investment processes to research and analyse investment risks related to climate change.

Our investment professionals need to assess a range of scientific projections about future sea-level rises, the frequency and severity of extreme weather events like droughts and also changing weather patterns. These physical risks have the potential to disrupt agriculture and other supply chains as well as raise insurance costs, affecting a range of industries and sectors. In addition to the amount and timing of the loss of cash flows directly related to physical climate change, our investment professionals need to anticipate the nature and timing of policy makers’ response to these risks in the form of new regulations and fiscal policies. For example, our investment professionals need to assess the impact of the UN Paris Agreement on the financial performance of issuers, both corporate and sovereign, whose securities are owned in our clients’ portfolios.

We also believe that the transition to a lower-carbon and more climate friendly economy could present multiple investment opportunities for our clients which as a global active manger we are well positioned to identify.

Please see the following links for our Climate Change Investment Policy and Sustainability Talks article with Michael Sheren, Senior Adviser to the Bank of England, speaking about the issues of climate change.

https://www.lazardassetmanagement.com/docs/-m0-/101883/ClimateChangePolicy_en.pdf

https://www.lazardassetmanagement.com/docs/-m0-/92751/SustainabilityTalks-AnAudienceWith_en.pdf

How do you stimulate debate and thought-leadership internally within the firm?

We have a number of internal channels through which to ensure lively debate and the exchange of ideas, including our weekly analyst meetings. We also leverage our internally developed digital message-board system known as “Dragonfly” that is used by our investment professionals as a forum to express and debate macro and micro views. We believe that this digital collaboration is an important tool that further strengthens our ability to bring meaningful and differentiated insight to our research process and enhances our investment culture.

This valuable resource connects our investment community in real time, allowing them to discuss, share, and debate any topic, including climate change, environmental regulation, and gender and diversity issues, anywhere in the world. For a deeper dive on investment related issues, investment professionals contribute to our internal research database, which captures proprietary investment theses, company updates, and engagement outcomes.

Breakdown of your total managed assets

% Exclusions – approximately 5% of assets
% ESG integration – approximately 82% of assets
% Engagement and voting – approximately 70% of assets

Breakdown of your ESG-aligned assets

% Equity – 93% of equity strategies are ESG Integrated with voting and engagement
% Fixed income – 100% of fixed income has ESG integrated into the investment process
% Alternatives – 100% of Convertibles which are 2% of total AUM
% Real Assets – not integrated (currently which account for 7% of total AUM)
% Multi asset – not formally integrated into the investment process
% Impact – n/a

Part of the Bonhill Group.