This document provides an overview of Sycomore AM’s integration policy for extra-financial or environmental, social and governance (ESG) considerations. This policy lies at the heart of the firm’s mission statement: to bring a human dimension to investing. It provides a basis for dialogue with Sycomore AM’s stakeholders and serves as a framework and guide for the firm’s approach as a responsible investor. The document also presents the principles, analysis tools and human resources dedicated to ESG integration, as well as Sycomore AM’s transparency, voting and engagement policy.
Sycomore AM’s mission is to deliver sustainable performance for its clients by investing in companies whose current market price does not reflect their economic and ESG fundamentals, or fundamental value. These companies tend to offer upside potential on the stock market.
Extra-financial or ESG criteria enable us to identify risks or opportunities that are not yet visible in the financial statements. We believe that a company can only deliver long-term value if this value is shared by all stakeholders: employees, clients, suppliers, institutions, associations, shareholders and the environment. Our approach is therefore structured around 5 stakeholders covering the full ESG spectrum.
ESG analysis embedded in our fundamental analysis: SPICE
In order to assess the fundamental value of a company, Sycomore AM’s fund manager-analysts systematically examine how a firm interacts with its stakeholders. This fundamental analysis is designed to understand strategic challenges, business models, the quality of management and their degree of involvement, and the risks and opportunities that face the company.
To achieve this, we regularly meet the managers of the listed companies actively covered by our fund manager-analysts; in this respect, we carry out around 1,700 meetings per year.
In order to provide a clear assessment of the fundamental risk carried by our investments, the fund manager-analysts allocate ratings to each company at the end of the analysis process. These SPICE ratings are determined following the analysis of over 100 qualitative or quantitative criteria, structured around 5 stakeholders:
- The first group includes Suppliers and civil society, and forms the letter S (Suppliers & Society)
- The second group of stakeholders focuses on employees, and is represented by the letter P (People);
- The third category of stakeholders covers shareholders and forms the letter I (Investors). It includes the pillars of solidity, visibility, competition, management quality and governance (G);
- Clients make up the fourth group (C);
- And finally the E rating (Environment) looks at the company’s environmental performance by examining any negative or positive impacts, as well as its broader contribution to environmental matters.
These ratings are determined on a scale of 1 to 5 and their weighted average, based on the company’s underlying sector and business lines, constitutes the overall SPICE rating. Furthermore, through the SPICE rating, the ESG criteria that are used to analyse a company’s relations with its different stakeholders have a decisive impact, through their beta, on the risk premium and target prices that are set based on the valuation analysis of our fund manager-analysts. To summarise, ESG considerations are embedded in the analysis process of each individual stock, and directly influence the fund managers’ investment decisions.