CPR Asset Management launches 'Social Impact' fund dedicated to tackling inequalities
CPR Asset Management, the thematic equities arm of the largest European asset manager Amundi, has launched a fund dedicated to tackling social inequalities, adding to CPR AM’s EUR10 billion thematic equities range.
One of the major phenomena that accompanies globalisation has been the widening of economic inequality around the world in recent decades. Between 1980 and 2018, globally, the incomes of the richest 1 per cent increased twice as much as that of the poorest 50 per cent. In addition, several studies show that the rise of inequality worldwide has negative effects on growth.
Inequality is also at the root of populist political agendas and social unrest movements, which have powerful negative consequences for markets. Investors are becoming conscious of the risks related to rising inequality, but until now lacked the appropriate investment solutions to address them.
CPR Invest - Social Impact provides the opportunity to put their savings to work helping to reduce inequalities and generate a positive social impact along with potentially higher financial returns. More socially aware companies should prosper since they will find it easier to attract capital, human talent, consumers and regulatory approval, while businesses that do not help to reduce inequalities are likely to face greater regulatory, political and reputational risk.
CPR Invest – Social Impact is an actively managed global equity fund, non-benchmarked, containing around 70 stocks. It will utilise an internal scoring methodology for companies and the countries where they are based, using 40 criteria. The investment objective is to outperform global equity markets over the long term (minimum five years), by investing in companies that are participating in the reduction of inequalities in their countries of establishment. Thematic equity portfolio managers, Yasmine De Bray and Eric Labbé, will co-lead the management of this fund.
Inequalities must be understood holistically and should not be limited to income gaps or gender disparities. Instead CPR AM proposes a holistic definition of inequalities is based on five pillars: Labour & Income, Health & Education, Diversity, Taxation, and Human Rights & Access to Basic Needs.
As inequalities must be assessed at country level first, the management team designed evaluation criteria for countries (e.g. progressiveness of the tax system, legal minimum wage, share of total expenditure on health and education as a percentage of GDP, legal provisions to combat discrimination, workers’ rights). They then compile an inequality score for 3,000 companies (e.g. pay differentials, working conditions, diversity policy, tax optimisation, employee training). This way, companies are assessed according to their efforts in reducing inequalities in the countries where they are headquartered.
Proprietary ‘inequality’ scoring combined with Amundi’s ESG scoring
CPR AM’s scoring methodology is the result of two years of research and will use a scoring scale from A to E to assess companies based on 17 criteria and countries using 22 criteria. Data sources will be from recognised providers and organisations.
The methodology is based on three principles:
• Selection: 50 per cent of the 3,000 stocks in the MSCI All Country World Index are excluded on the overall ‘inequality’ score.
• Materiality: despite a good overall score, misconduct one or more pillars could adversely impact a company’s valuation; therefore, the worst 10 per cent per pillar is excluded. Each pillar carries equal weighting.
• Improvement: the company’s social policy must reflect the best practice of its country or improve the country’s practices; therefore, companies selected must have an overall score greater than or equal to the country in which they are headquartered.
In addition to the ‘inequality’ scoring, CPR AM’s ESG methodology assesses whether a particular company is to be included in the fund’s investment universe. Filters are applied to businesses involved in major ESG controversies, as well as on any company that scores poorly on both overall ESG criteria and underlying social criteria (S).
Valérie Baudson, CEO of CPR Asset Management, says: "The increasing tensions in our societies illustrate the pressing need for a transition to a fairer economic model. As an asset manager, we seek solutions that are concrete and relevant to social issues, and to fulfil our fiduciary duties. We believe that investing in listed companies that pay attention to social issues is a driver of value creation over the long term. CPR Invest – Social Impact provides investors with a unique solution taking into account the financial risks associated with inequalities and making it possible to contribute to reducing them through their investments.”
Jean-Jacques Barbéris, Head of Institutional and Corporate Clients Coverage at Amundi, adds: “Much like the environment, social inequality is the critical issue for the 21st century. Investors should integrate this dimension in their decisions. No one can substitute government action, but companies and investors do have a role to play. While the topic is complex, we offer investors a transparent methodology capable of selecting companies based on their participation in remedying social inequality. We hope this innovative approach will encourage the entire investment community to question their existing strategies and spur them to act fast.”