After an hour of conversation with Léa Dunand-Chatellet, you come out, with the feeling of a frank exchange, without wooden language, pedagogue and able to take height on a highly topical subject.
Léa Dunand-Chatellet is a recognized expert in Socially Responsible Investment with almost 20 years of experience as an SRI analyst at the beginning, then with the double hat of analyst-manager that allows her to have significant credibility when it comes to discussing ESG and financial management. Léa has been Director of SRI Management for major houses specializing in responsible investment in the Paris market (Sycomore, Mirova).
DNCA Finance recruited her in 2018 and in the space of a few months, she implemented the responsible investment policy of the management company, which positioned it as a major player in SRI.
DNCA Finance, a 100% subsidiary of Natixis, currently has nearly 160 employees in Paris, with €28 billion under management in a range ranging from traditional equity management to alternative long-short-action or global macro strategies.
How did you, as an SRI expert, decide in 2018 to join DNCA Finance, a recognised management company that is not positioned on SRI?
DNCA Finance's project was clear. The ambition to develop a responsible investment policy, aligned with its investment philosophy and corporate culture. An entrepreneurial DNA, with a management approach where everything is homemade. It was this ambitious project that echoed my convictions. Build a proprietary SRI model, having total control over data and evaluations, do not use external suppliers but apply a recipe dear to DNCA Finance, i.e. use 100% internal financial research, for the extra financial. Nowadays the observation of failure or let's say the weakness of external ratings is no longer to be demonstrated, but when I arrived in 2018, it was a far-sighted position on the part of the management of DNCA Finance, and corresponded perfectly to my vision of things, resulting from my experience.
In 2018, SRI-labelled funds are close to a thousand and labels no longer guarantee the sincerity and purity of the SRI approach. We recognize that something else needs to be done, and we are creating the Beyond range of funds, with the desire to demonstrate the positive, measurable contribution of our funds. Not only the consideration of the extra-financial.
We then develop a proprietary rating methodology, ABA, Above and Beyond Analysis, which feeds all DNCA Finance management teams.
You are in charge of SRI analysis but do you manage funds?
Of course! It is essential, it is thanks to this that we can understand the issues to be integrated and make the extra-financial an essential element, in the same way as the financial, of the analysis of a company.
When I arrived, we were in charge of managing a range of SRI funds. Since then, almost all DNCA Finance funds have been SRI labeled, and the Resonable Investment division is composed of 8 people who have been managing the most demanding range of Article 9 funds since 2018.
All extra-financial analyses are carried out in our team and feed the other management teams, at their request. We focus our efforts on approximately 650 stocks that represent DNCA Finance's active universe. The objective is to provide quality extra-financial analyses, rigorous and in anticipation of an investment by our team or the other management teams of DNCA Finance. Responsiveness is essential today and analytics evolve daily with the information that affects companies. Extra-financial information can now be translated into immediate management acts.
Over the years we have strengthened our analysis tools, for example, we now use artificial intelligence to scan all controversies and information about invested companies. But the philosophy remains the same, we rely on raw data, from companies and not on data from external suppliers or estimates.
You now have almost 20 years of expertise on SRI, how have you seen the demand for SRI products evolve?
20 years ago, responsible products were the preserve of institutional management, large pension funds or institutional investors were at the origin of the demand for this type of product. Today, the change is radical.
At this year's Patrimonia[1] show, for example, we were bombarded with questions about SRI. This change happened 3 or 4 years ago I would say. We must be vigilant, we observe that often the demand comes from intermediaries who want to meet the needs of meaning, useful allocation of the savings of their customers, concerned about the challenges of our century. But the need for pedagogy remains important, the need to explain exactly what the portfolios will contain, to get out of a world a little binary black or white, bad against good, and to explain the necessary nuances, the financing needs of the economy, the energy transition and the reality of investments on the markets.
I believe that my dual experience as a manager and SRI analyst in this context is essential, because it allows us to situate the debates in a context of portfolio management and construction, with in-depth knowledge of financial and extra-financial.
It is also a strong asset of our management, the desire not to surf on trends, to react to emotion or to bounce back on the news, whether by opportunism or aversion to risk (real or reputational). We do not do "ESG Style drift", that is to say that the policy of exclusion, commitment or investment is based on rational, thoughtful elements and that there is no question according to the news of modifying it, and adding exclusions to fashion, or conversely to reinvest an excluded sector because the trend is favorable.
The new SFDR regulation was born last year with this Article 8 or 9 classification whose vague definitions may have created a little disruption in the world of management, what is your opinion on this new regulation?
I see two important elements in this regulation.
First, the need to get out of this world governed only by labels, with a rather binary vision, either you had a label or you did not, and rules with variable geometry according to the national labels. Today, the framework is set by European law, it is a hard control, as opposed to the soft control of labels, and this is progress. A law is enforceable and binding.
Regulation makes it possible to clean, structure and graduate SRI issues, to provide a necessary nuance:
- You are not interested in SRI, it is not possible for your strategy; You are Article 6.
- You are interested, ESG issues are integrated into your approach but you do not want to commit to a minimum of so-called responsible investment, you are article 8 "light".
- You can not only integrate extra-financial issues, but you will consider companies with a positive contribution to certain issues and commit to invest a minimum in these companies, you are article 8 plus.
- And finally, you have the ability and the will to offer a product with only investments in companies with a positive contribution, 100% of your portfolio will be invested in so-called responsible investment, you are article 9.
So certainly the current state of regulation lacks a little clarity and precise definition but the graduation in the SRI offer is a good thing, it corresponds to the reality of financial investments.
The second interesting point of the regulation is the consequence on the emergence of a new competence, that of data science.
The amount of data to be processed becomes astronomical, this skill will become key in our business. For the moment, the data are not very homogeneous, standardization is underway but we must be extremely vigilant when comparing between companies and not compare incomparable data. There are a lot of expectations from the industry about data harmonization.
On this subject, do you think that the European taxonomy will improve things?
European taxonomy is in principle, and to pick up on my previous point, a great step forward. This should make it possible to identify a company's green turnover for everyone in the same way. We therefore look forward to the taxonomy being applicable to companies (from June 2023 ) in order to obtain this harmonised and comparable raw information. This should create visibility for investors who will be able to identify exactly the % alignment with the taxonomy of their portfolios, 5, 10 or 15%, the information will be comparable and meaningful for investors.
Do you think that all these efforts should help avoid greenwashing?
My strong belief from the beginning was that regulation should impose more rigour and transparency. For example, it was clear that articles 9 had to be extremely demanding. The objective is certainly not to have 100% of Article 9 funds, this makes no sense from a financial point of view, and is not advisable for investors to have all their outstanding amounts in Article 9, the lack of diversification would be glaring. But the graduated classification must reach a level that is uncompromising and readable for the general public.
Document written on 14/03/2023.
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[1] The Patrimonia exhibition is the largest gathering in France of professionals from the world of wealth advice: CGP, CGPi, Family Office, Private Managers, etc.
