Extra-Financial Research

Sustainability research is:

• three-dimensional: focused on environmental, social and governance criteria
• sector-specific : to compare like with like,
• dynamic and forward-looking: aimed at identifying emerging ESG-related risks and opportunities that might have an impact on corporate performance

The ESG rating of companies is implemented according to a documented, clear and traceable process.

At first, the team of 8 extra-financial analysts has defined a set of 42 ESG criteria: 20 generic criteria applicable to all sectors and 22 specific criteria depending on each sector. These criteria are based on compliance with the applicable laws and directives and on compliance with universal principles drawn up by international bodies such as the UN, OECD, ILO.

Working with Amundi’s financial analysts, our extra-financial analysts prepare a risk and opportunities map that assigns importance to ESG criteria in each sector according to "best-in-class" criteria. In other words, the greater the risk associated with a given criteria, the higher the weighting given to those criteria. Furthermore, the criteria are weighted according to the risks inherent in the business sector concerned.

Sample Risk-mapping: Analysis Criteria: Automobiles and components

Extra-financial analysts evaluate issuers (companies and countries) worldwide. They rely on the following information:

• the work of specialised rating agencies, selected based on the subtlety of their analytical criteria, the extent of their coverage, the quality of their analysis, their ability to justify their ratings and how quickly they react to corporate newsflow
• brokerage house publications
• and especially, they regularly meet companies. This last initiative is essential in the validation of information as well as to heighten businesses’ awareness of ESG issues and encourages progress.

Analysis Process

*Untracked companies: companies not tracked by external data suppliers because they have only recently been floated on the stock exchange, or belong to an emerging theme (solar, biomass, etc.), or have a small market cap. In these cases, sustainability analysts carry out their own investigations based on publicly available company information, broker research/contact, documents published by NGOs and specialised consultants, and meetings with company executives.

Extra-financial rating of countries: the “CARe” methodology

The analysts have opted for an ESG (Environment, Social, Governance) rating process similar to that used for companies. Countries are rated on a scale of A to G, A being the best-rated countries and G the least well-rated.

In order to assess a country’s performance, the analysts refer to publicly available data from international organisations (World Bank, World Health Organization – WHO -), international NGOs such as Transparency International, which leads the fight against corruption, and specialised organisms like the World Resources Institute (WRI) for environmental issues.

The CARe approach is now applied to developed OECD countries and to strong growth countries such as Brazil, Russia, India and China.

CARe database and methodology

The database consists of 9 criteria (3 environmental, 4 social, 2 governance) relating to the country’s role in the three fields of ESG: for instance, “preserving biodiversity” for the Environmental criteria, “population’s health” for Social and “transparency of the country’s political system” for Governance.
These criteria then break down into 3 types of indicators (Compliance, Actions, Results), forming the basis of the methodology known as “CARe”.

Compliance, or engagement through signing and ratifying charters, treaties, conventions and directives: Kyoto Protocol, Convention on cluster munitions (CCM), etc.

Actions, or concrete and direct measures taken by the State, implementation of public spending policies for health and education, etc.

Results, or indicators for which there is no direct State intervention and which can be used to measure a country’s performance, e.g. CO2 emissions per inhabitant, total per capita waste generation, infant mortality rate, life expectancy, freedom of the press.

Country Analysis