Since its beginnings, TOBAM has decided that sustainable development would be explicitly core to its values. Our clients have a long-term approach to investing and our sustainable way addresses these concerns. TOBAM has a long-standing commitment to uphold environmental, social and governance issues (ESG). These principles are integral in the rules structuring our activities. We aim to act in a socially responsible manner via our business, our social relations and our long term vision of sustainable growth. Furthermore, TOBAM and its stakeholders endeavour to actively promote ESG standards and implementation both at the client level and the industry level. TOBAM’s sustainable way relies on two pillars: the Sustainable Responsible Investment approach and our internal corporate engagement and actions.
What is the origin of TOBAM’s commitment to Sustainability?
TOBAM’s mission is to provide rational and professional solutions to long term investors in the context of efficient markets. Back in 2005, when I first articulated what will become TOBAM, it was clear to me that serving institutional investors around the world, would imply taking into consideration a long-term horizon. This is what the Maximum Diversification approach is about, delivering an “equilibrium” portfolio, whatever the market cycle, whatever is happening in financial markets, however long you keep the portfolio, you get what we promise: Maximum Diversification.
In that spirit, since our clients have a long-term investment horizon and have to deal with major sustainability-related challenges that lead to tangible impacts on investment portfolios, we decided very early on, in 2007 to incorporate ESG criteria into our investment process.
Sustainable investing is not meant to highlight a moral point of view, it is not meant to determine what is good or what is bad (also we believe that integrating ESG criteria is not meant to provide additional performance on the short term), it is however instrumental in managing risks and makes sense in the context of long-term investments.
As part of our fiduciary duty, TOBAM is committed to protecting its clients’ interests by taking into account most of the factors that could impact the financial performance and/or risk profile of investee companies. As a result, ESG issues cannot be considered as “extra-financial” criteria, as they form an integral part of the factors to be considered, alongside traditional ones.
What is different about TOBAM’s approach to sustainability and responsibility?
TOBAM’s onboarding of sustainability took place very early on in the development of TOBAM, and has been expanded over the years by the continuous contribution of employees, clients, shareholders and partners. The journey has led us to establish some investment beliefs around our vision of what should be a responsible investment policy at TOBAM. Let me share with you three of these beliefs that I believe are quite differentiating.
As explained earlier, the first belief is around the investment horizon. In alignment with the long-term views of our investors, every initiative we take at TOBAM is looked at with a long-term view. Short-term gains may seem attractive but what matters is longevity and sustainability (in terms of resource efficiency, responsible use of resources, human and financial capital etc.).
The second belief is that ESG implementation at TOBAM should be across the board: meaning to all our assets under management. We haven’t considered offering a dedicated ESG range of products, but rather decided that all ESG implementation efforts should be applied to the full range of our strategies as well as our mandates by default (unless specifically instructed otherwise by the client …. Which has never happened).
The third belief I will discuss is that all ESG integration enhancements should be driven by research. This principle goes beyond sustainability since research is the driver of all projects at TOBAM. Hence, as is the case for other investment or optimization innovations, ESG integration ideas or projects are driven by research, investigated and documented before being implemented.
Other principles relate to transparency, partners and responsible use of our influence (promotion of good practices via active ownership and engagement).
Our SRI-related policies and reports are freely accessible on our website (Exclusion policy, Engagement policy, SRI policy, Sustainability Report…).
As a quantitative manager, are there any specificities in incorporating ESG compared to fundamental managers?
I identify two main differences.
The first one is the importance of data. As a quantitative manager we are relying on data, and since our approach aims to deliver the Most Diversified Portfolio, i.e. the portfolio without bias, we need to take extra care as to the quality of the data. We have, very early on, decided to use raw ESG data, instead of ESG scorings or ratings. Our research team has conducted thorough analysis on the data, scores and various ESG ratings from various providers and the conclusion was that given the lack of correlation between the various providers rating’s, using raw and high-quality data from the company was the safest and most rational option. This is a cause we are pleading before parties involved in setting up framework such as the TCFD to make sure the ESG data are as rigorous and based on a common framework, so that the quality of ESG data is as publicly available and rigorously published as traditional financial data.
The second major difference is our capability to back test and proof-test any changes or additions to our process. Let me take an example, when we decided to include a constraint to reduce the carbon footprint of our strategies compared to their reference benchmark, we were able to rigorously measure the impact of such a constraint on our strategies. Since our process is systematic, we can actually measure the portfolio characteristics with the constraint and without the constraint. This is a very significant competitive edge of quantitative managers compared to traditional managers.
In this case, we have been able to demonstrate that the addition of the constraint did not significantly impact the risk return profile of our strategies, nor their diversification benefits as measured by the Diversification Ratio®. This has been documented, measured and published in various research notes. The same process was in place when we introduced the exclusion list, we are able to very precisely quantify the impact of the application of the exclusion list to our investment universe for TOBAM’s strategies.
Since our main objective is to deliver again Maximum Diversification, this is a crucial added value for our clients to be able to exactly document the impact of any additional constraint or criteria on the strategy and in practice assured that we deliver what we promise.
In addition to what is done at the portfolio level, TOBAM is recognized as a responsible company from a corporate point of view, what are the drivers behind TOBAM’s sustainable corporate initiative?
At TOBAM we believe it is very important to set an example in terms of sustainability issues and to encourage others to apply ESG focused business practises. This is the main reason why we have decided to adopt a very proactive corporate social and responsible policy. After all, it would have been quite hypocritical to take into account the sustainability of the corporate strategies of the companies we invest in, and not, at our own level, to behave properly!! The Sustainable committee in which I take an active part, meets every quarter not only to discuss challenges and projects in regards to ESG integration at the portfolio level but we also onboard ideas at the corporate level. Let me take two examples:
As an asset manager, TOBAM’s direct environmental impact is fairly limited compared with the pollution generated by industrial activities. However, we are keen to play our role in the global sustainability challenge by controlling our impact through a proportionate two-tier approach, relying on both mitigation and offsetting.
An external auditor annually calculates TOBAM’s carbon emissions. We then offset 150% of our carbon footprint by financing reforestation programs. While we strive to introduce mitigation efforts wherever possible, some of the impacts cannot be significantly reduced. Air travel, for instance, is unavoidable for TOBAM considering its international scope of clients. In these cases, carbon offsetting is a way of making a concrete contribution in response to environmental issues.
Another initiative we took back in 2011, is to sponsor NGO dedicated to human rights in the world. When we launched our emerging markets equity strategy, back in 2011, we were concerned by the human rights challenges in some of these regions, after all investing in emerging markets helps the people of emerging markets but could also support indirectly governments that are not exactly human rights friendly and this is not aligned with the long term interests of our investors. Furthermore, we decided to donate a part of our revenues to NGO’s defending human rights worldwide, offsetting in a way the support we could be providing to instances or governments not fully respectful of human rights. We consider indeed that fundamental human rights are the optimal enhancer to creativity, innovation and, ultimately, to long-term economic growth.
Also, I would like to share the initiative we took a few years ago now, the “Employee Sustainability Initiative”. In order to encourage and raise even more the employee’s awareness with regards to E, S or G issues as well as to benefit from their ideas and experience, each year, TOBAM invites employees to submit a proposal which will enhance the contribution of the firm to such ESG related issues and challenges. The employees that comes up with the best ideas will implement it, and will receive a prize.
TOBAM offers a quantitative management approach which integrates socially responsible investment criteria via an exclusion list.
Applied to equity and fixed income strategies, respectively since 2007 and 2015, we are looking at Maximum Diversification® indices since 2011, this negative screening is based on the exclusion list published by the Norges Bank, a renowned investment institution and founding member of the PRI , as some other leading institutions.
This exclusion list involves controversial products ( Tobacco, Coal, Weapons ) and other controversial behaviors ( Human rights, Environment and International Laws, severe damages or breaches ).
We are committed to third parties, the industry and the investment companies as another crucial step towards the promotion and development of responsible investment.
Since the adoption of Norges Bank’s exclusion list in 2007, TOBAM has implemented a number of initiatives to further supplement its sustainable investment approach. TOBAM’s research department dedicates a significant amount of its time and resources to study the ways in which sustainable investment and ESG topics can be integrated into portfolios without disrupting TOBAM’s Maximum Diversification® philosophy.
TOBAM’s research team carried out extensive research on the reduction of the carbon footprint of our portfolios via the implementation of a carbon footprint constraint compared to the market cap weighted benchmark of the investment universe.
Based on our findings, we demonstrated that a systematic reduction of 20% of all of TOBAM’s portfolios carbon footprint versus their respective benchmark has no significant impact on the portfolio’s risk/return profile, nor on its diversification benefits.
This relative carbon footprint reduction constraint was implemented in the portfolio optimization process, for all Anti-Benchmark® equity portfolios since June 2018, to all Maximum Diversification® Indices since September 2018 and to fixed income portfolios since June 2019.
Proxy Voting is key component of our business, TOBAM uses its ownership position in companies to further its commitment to socially responsible investing on behalf of clients, and to improve corporate governance by exercising proxy voting rights. Proxy voting is conducted in the sole interest of clients. TOBAM implements an SRI proxy voting policy across investment strategies. Proxy voting is carried out by ISS, a leading provider of corporate governance solutions. Please see below our voting policy. If requested by clients in separately managed accounts, TOBAM can apply a client’s specific voting policy.
TOBAM’s investment process provides a large flexibility to offer bespoke solutions to our clients:
TOBAM has a long standing commitment to Corporate Social Responsibility. It defines corporate engagement as using its shareholder position on behalf of our client shareholders to influence company decision making and further the integration of ESG principles and good corporate governance in the companies in which it invests:
By adhering to the principles for socially responsible investment set out by the United Nations, TOBAM pledge to take environmental, social and governance (ESG) issues into account, thus recognizing the ultimate importance of these issues.
This engagement strengthens our company’s involvement in UN-related organizations in order to encourage global companies to monitor and disclose their carbon and water emissions.TOBAM has implemented carbon compensation measures to compensate 150% of carbon emissions.
The UK Stewardship Code is overseen and published by the Financial Reporting Council, the independent regulator overseeing financial reporting, accounting and auditing and corporate governance.
TOBAM also proactively integrates ESG initiatives within its own business and has published a comprehensive description of all current ESG efforts. We are committed to aligning our company operations and goals with the ten universally accepted principles set forth in the UN Global Compact, specifically in the areas of human rights, labor, the environment and anti-corruption. TOBAM aims to continue to broaden the scope of its activities in this area.
Sustainability as pillar of TOBAM’s corporate policies At the corporate level, TOBAM applies a sustainable approach with all stakeholders: Clients, Employees, Shareholders and the Environment at large.
Example of actions at the corporate level Since 2010, TOBAM has set-up a compensation program of 150% of the carbon footprint of the company. Since 2011, TOBAM sponsors Amnesty International: donation of a share of profits generated from the Anti-Benchmark Emerging Markets Equity Fund.
We consider that fundamental human rights are an absolute prerequisite to creativity, innovation and, ultimately, to long-term economic growth. Based on this acknowledgement, we decided to build up a donation program focusing on this theme when we launched our Anti-Benchmark Emerging Markets strategy in 2011, which led us to consider the human rights track record of certain governments in emerging countries. Concretely, this contribution takes the form of significant annual financial sponsorship of NGOs to promote human rights. Every year since 2011, we have dedicated a share of TOBAM’s Anti-Benchmark Emerging Markets Equity Fund’s revenues to such donations.
The growing success of the Anti-Benchmark Emerging Markets Equity strategy in May 2015 to include a second partner, Human Rights Watch, in TOBAM’s efforts to offset its human rights. Human Rights Watch is known for the high quality of its research; for its strategic, targeted, high-level advocacy; for the independence of their work, and for the impact they have on the lives of millions of people. The strength of Human Rights Watch is their influential membership, the “fatstops” advocacy-their ability to access world leaders and effect change policy. TOBAM’s initiative with Human Rights Watch, a range of issues: the use of explosive weapons, landmines, monitoring of the humanitarian situation, illegal detentions and torture, freedom of speech, and disappearances in Crimea. www.hrw.org
” The support we have received from TOBAM in the past years has enabled our team in Ukraine to make under-reported rights violations more visible in the local and international debate and advocate for change. Be it Crimean Tatars who were wrongfully accused of terrorism for politically motivated reasons, the older people particularly affected by the conflict in Eastern Ukraine or journalists who were attacked or threatened, none of their stories would have been heard without the support of our partners like TOBAM. ”