our sustainable investment framework.

Lombard Odier’s sustainable investment framework covers two key elements of corporate sustainability: What businesses do (their business model and activities) and How businesses operate (their business practices). For each element, we focus on the most financially material issues to the sector and industry. In our view, both elements are essential to better inform investment decision-making based on in-depth, forward-looking analysis of how well companies are positioned for the transition to a sustainable economy.

 

Our vision for a Sustainability framework 

4. Vision-for-sustainability-framework_EN.jpg

Source: LOIM. For illustrative purposes only

 

assessing the what.

This analysis, conducted by our Sustainable Investment Research Strategy and Stewardship (SIRSS) team, looks at companies' business models and activities and combines top-down, macroeconomic analysis with bottom-up approaches to assess:

  • the exposure of different sectors/industries to opportunities and risks arising from sustainability dynamics, including climate change scenarios, the macroeconomic world view, energy and mobility forecasts.
  • the susceptibility of each sector/industry to those risks and opportunities, including what business strategies exist to mitigate the risks or capture the opportunities, climate mitigation and adaptation, new innovative/disruptive technologies and company preparedness.

This process uses advanced data science and machine learning techniques, as well as our proprietary LO Portfolio Temperature Alignment Tool, which allows us to strategically analyse the degree of alignment of companies, industries and portfolios to the decarbonisation pathways implied by the goals of the Paris Agreement, which seeks to limit global warming to well below 2°C.

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assessing the how.

This element looks at companies' business practices in relation to their broad ecosystem of stakeholders. Our proprietary 'CAR' methodology (Consciousness, Action, Results) enables us to differentiate between the 'talkers', 'doers' and 'achievers', and identify companies that are making measurable progress in the transition to more sustainable business practices. We also assess the alignment of business practices with the 17 UN Sustainable Development Goals (SDGs) and look at companies' exposure to controversies, which occur when companies breach internationally accepted standards or norms, as defined by the United Nations Global Compact Principles. In our view, controversies could have a major impact on a company's reputation and lead to lower market performance. Our assessment of business practices also looks at certain impact metrics, including companies' carbon and water intensity.

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stewardship.

stewardship.

Using intelligence and analysis gathered by our dedicated sustainability teams, we address issues that are financially material at a systemic, sector or company level through engagement and voting activities, which we carry out either directly or through collaborative initiatives. We enter into a dialogue with companies to test and challenge their approach to the sustainability factors we think are most material to their prospects and will seek to influence their sustainability positioning in areas we think they are weak or where there is room for improvement.

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climate risk assessment.

climate risk assessment.

We recognise and assess the importance of physical, transitional, as well as reputational and liability risks of climate change as part our sustainability framework. We assess the exposure to these risks and opportunities at an industry level and our analysts look at susceptibility to these transitions at a company level. Our analysis covers more than 160 individual industries.

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exclusions and restrictions.

We systematically exclude companies that manufacture or sell non-conventional weapons (such as cluster bombs and anti-personnel mines) and financial instruments directly linked to essential food commodities (ie soya, rice, wheat, corn). We apply socially responsible investing (SRI) restrictions to companies with activities in coal, unconventional oil & gas, tobacco and/or to companies with exposure to extreme controversies. For some portfolios, we apply additional ethical screening criteria and can also apply bespoke filters for individual clients based on their own believes and objectives.

 

 Cick here for our latest sustainable investment policy documents