Asset owner, asset manager or private equity

1. Funds selection – Decision & Benchmark

Purpose

The NEC methodology enables investors to clearly assess the total impact on the environment of a product, service, company or sector.

To derisk conventional portfolios;
To design a transition or impact fund;
To set up exclusion and selection criteria.

The NEC metric has several applications:

To identify activities, whether highly polluting or not, that are in transition and monitor their progress;
To identify activities that are already aligned with the ecological transitions, which are part of the solution;
To identify business models that are the most damaging on the environment and are more exposed to transition risks;
As a robust benchmark tool, with its database consisting of over 45,000 issuers.

Case studies

Objectify an investment decision in a due diligence phase

Private equity

SWEN Capital Partners

Building an environmental thematic fund

Asset manager

Sycomore Asset Management

Private equity

You are a private equity actor and you want to

Objectify an investment decision in a due diligence phase

How to use NEC?

We calculate scores for direct investments made by all our investment lines.
For each company in the pre-investment phase, ESG analysts calculate the NEC score for the identified companies.
Investors are trained in the use of the NEC, creating a common and robust language for decision making.

Since 2019, we have been using NEC as a true decision-making tool for our investments. In the pre-investment phase, the NEC score embodies the key messages of our environmental analyses in a robust metric. The NEC metric (with scores ranking from -100% to +100%) was quickly adopted by all investment teams for its clear, precise framework and scientific approach. All of our investors have been trained to the use of NEC.

Julie Olivier, ESG Responsible for direct and impact management

EXAMPLE:

The creation of the SWIFT 1 fund, a professional impact fund for infrastructure dedicated to renewable gases (biomethane and green hydrogen).

Click here to see the infographic.

Asset manager

Building an environmental thematic fund

How to use NEC?

Analysts are trained in the use of the metric: they calculate the NEC scores of the companies in the investment universe and of the benchmark indexes.
Fund managers use the NEC metric as a criterion for stock selection (or possibly exclusion).
The NEC metric is used as an aggregate measure of the portfolio’s environmental contribution for monitoring and reporting purposes.

We have been using the NEC metric since 2017 and use it as a criterion for stock analysis and selection within our investment process to define the strategies of our “environmental” thematic funds. The NEC metric gives us an intelligible and factual reading of the activities that participate in the ecological transition and, above all, allows us to objectify the environmental impact of the invested companies.

Anne-Claire Abadie, Portfolio Manager for Eco Solutions fund

EXAMPLE 1:

Our investment process for the construction of our funds: “Sycomore Europe Eco Solutions”, and “Sycomore Global Eco Solutions”.

The NEC is our first selection criterion: after having filtered the universe on the basis of the specifications of various labels and our exclusion policy, we look at the NEC score of the stocks presented. Each stock in the portfolio must have an NEC +10%.

EXAMPLE 2:

The construction of our “Objectif Climat Actions 2” fund.

The selection of stocks from an environmental perspective is based on the contribution of products and services to the ecological transition (through the NEC metric) and the alignment of companies with climate scenarios and planetary limits (with, among other things, criteria for projected temperature increases).

NEC 1.0, calculated by Sycomore AM and based on 2018, 2019 and 2020 data. Labels allow the identification of responsible and sustainable investments for investors. They aim to guide investors but do not offer a guarantee of the capital invested and do not attest to the quality of the management implemented through the funds. The fund offers no guarantee of return or performance and presents a risk of capital loss. The funds present a risk of capital loss. For more information, please visit www.sycomore-am.com.

This publication is not intended to be an offer or solicitation to buy or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and should not be construed as recommendations to buy or sell such securities.

2. Build index solutions

Purpose

Our methodology can be used to develop holistic or sector-specific sustainable investment strategies.

It supports:

Index providers who are building environmental thematic indexes or who are developing an environmental filter for existing indexes;
Structured finance teams that are developing environmental indexes, derivative products or who want to embed environmental criteria into their strategies.

Case study

Creation of the green index – Solactive Atlantic NEC 50

Index provider

Solactive

Index provider

Creation of the green index – Solactive Atlantic NEC 50

Why was the NEC chosen as a tool to create a “green” index?

Cross-sectorial, the NEC is a relative metric: it is the ideal tool to compare all assets regarding their environmental impacts.
Transparent (the entire methodology is available online), it is scientifically opposable.
This is another example of the NEC’s role as an environmental compass for financial actors: to serve a stock-picking strategy or as a selection tool for “green” indexes, it is a robust, reliable and easy-to-use tool.

This index was created by Solactive, a European index provider. Link

3. Engage & support

Purpose

Engage with your participations on the environmental performance of their business activities. The NEC metric provides:

A robust understanding of the environmental impact of a company’s activities;
A framework to assess how strategic decisions impact the environment;
A common language to define objectives and identify best practices.

Case study

Getting to know and dialogue with companies

Asset manager

Sycomore Asset Management

Asset manager

Getting to know and dialogue with companies

How to use NEC?

To calculate a company’s NEC score allows analysts to delve into the reality of their business model and better understand its impacts.
This knowledge is useful to establish a dialogue with the companies’ management teams about the relevance of their environmental strategies about their products and services and their contribution to the environmental transition.

Calculating a NEC score immerses me in the business model and in understanding the environnemental impacts of the company’s activities. It is a real tool for stewardship because it allows me to have honest and constructive discussions with companies about their environmental progress.

The NEC is not just superficial data, it is a real tool for a clear-sighted and demanding investment strategy.

Ariane Hivert, ESG Analyst

EXAMPLE 1

The historic operator of the Channel Tunnel, Getlink diversified with the creation of Europorte, in 2019, a rail freight company, and more recently of ElecLink, an electrical interconnection between the United Kingdom and France. By calculating the NEC, we were able to go into detail about each of these activities in order to understand their environmental impacts. This was also an opportunity to identify environmental performance levers, such as the electrification of long-distance freight trains, which we were then able to discuss with the company.

EXAMPLE 2

The update of ENI’s NEC in 2022 was an opportunity to better understand the activities of the Group’s new “Plenitude and power” segment, created in November 2021, which includes retail, e-mobility and renewable activities. As part of the NEC calculation, we contacted the investor relations teams to obtain more information on the breakdown of revenues between the various activities, particularly between renewable and gas contracts. This work allowed us to identify the presence of fossil activities in this segment, presented as Eni’s green subsidiary, and to engage the Group on the communication made about it, a particularly sensitive subject as it plans to spin-off.

NEC 1.0, calculated by Sycomore AM and based on 2018, 2019 and 2020 data.

This publication is not intended to be an offer or solicitation to buy or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and should not be construed as recommendations to buy or sell such securities.

4. Demonstrate compliance & achieve certification

Purpose

The NEC metric supports investors’ efforts to achieve and demonstrate compliance with soft and hard laws:

SFDR (Sustainable Finance Disclosure Regulation): Article 8 and 9 definition of sustainable investment;
Article 29 LEC French Energy Transition for Green Growth Law;
Complementarity with Taxonomy alignment;
TCFD recommendations on transition risk;
TNFD recommendations about “Nature nexus” (NEC Initiative is member of TNFD forum and Data Catalyst group);
PRI reporting scheme.

The NEC metric also provides invaluable support for green certifications (French SRI and Greefin labels, Belgian Towards Sustainability, …).

Case studies

Define a sustainable investment criteria – SFDR

Asset manager

Sycomore Asset Management

Measure your investments’ contribution to an environmental objective

Private equity

SWEN Capital Partners

Clarify the climate and biodiversity alignment strategy – Article 29 LEC

Asset manager

Ircantec, BNP Paribas Cardif & Groupama AM

Asset manager

You are an asset manager and you want to

Define a sustainable investment criteria – SFDR

We use the NEC metric for our definition of a sustainable investment as defined by the SFDR regulation. To measure the positive environmental contribution, we use a NEC score of +10% or higher as a selection criterion for each component of the funds concerned.

Anne-Claire Imperiale, ESG and Engagement Responsible

NEC 1.0, calculated by Sycomore AM and based on 2018, 2019 and 2020 data.

This publication is not intended to be an offer or solicitation to buy or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and should not be construed as recommendations to buy or sell such securities.

Private equity

You are a private equity actor and you want to

Measure your investments’ contribution to an environmental objective

How to use NEC ?

Use NEC as a criteria to define a sustainable investment.

Link towards the document explaining the sustainable investment definition.

As part of our sustainable investment approach, NEC is one of the metrics we use to measure the level of contribution to an environmental objective. In this respect, NEC, like the European Taxonomy that we also use to define the sustainable nature of an investment, is key to the deployment of our vehicles classified in articles 8 and 9. For NEC, we have established a minimum contribution score at +10%.

Renaud Serre-Lapergue, ESG Multi-Strategy Manager

Asset manager

Clarify the climate and biodiversity alignment strategy – Article 29 LEC

How to use it?

Measure the NEC of your funds and their benchmarks, to enhance the environmental performance of your portfolio.

Example 1 : Ircantec CSR Report 2020

Example 2 : Groupama AM ESG report 2021 and Article 173 report.

Example 3 : BNP Paribas Cardif – Article 173 report 2019

5. Increase transparency & clarity in reporting

Purpose

The NEC is a powerful reporting tool with its high transparency and an easy-to-understand single figure to encapsulate the sustainability of a financial product. It enables you to:

Build and highlight your environmental strategies;
Report to your stakeholders regularly and easily on the E-results of your ESG strategies.

Case studies

Build and pilot an environmental strategy for the company

Asset manager

Sycomore Asset Management

Demonstrate your environmental commitment to your stakeholders

All financial actors

BNP Paribas Cardif, Groupama AM & Sycomore AM

Asset manager

You are a financial actor and you want to

Build and pilot an environmental strategy for the company

The NEC metric serves as a pillar in defining our company-wide “natural capital” strategy. As committed investors, we not only want to set ambitious goals, but also measure our progress. To all our stakeholders, we must do so seriously and honestly. In this sense, the NEC metric is very valuable to us because of its complete transparency.

Christine Kolb, Co-Funder

This publication is not intended to be an offer or solicitation to buy or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and should not be construed as recommendations to buy or sell such securities.

All financial actors

Demonstrate your environmental commitment to your stakeholders

The NEC metric is easy to read : a score from -100% to +100%, it enables a simple communication of your results with your different stakeholders.

The NEC metric is the only one that gives us a comprehensive view of the environmental impact of our investments, as it takes into account all environmental issues (climate, biodiversity, waste management, etc.).

Groupama AM

BNP Paribas Cardif uses the NEC to improve its understanding of the environmental impact of its investments.

BNP Paribas Cardif 2019

We achieve a combined NEC of +11%, above the sector average (0%), which reflects the quality of the integration of environmental analysis into the investment process.

BNP Paribas Cardif 2020

Source: extract from Sycomore Europe Eco Solutions’ 2021 responsible investor report at the end of December 2021. Sycomore AM does not guarantee the accuracy, completeness and exhaustiveness of the extra-financial reports. The funds present a risk of capital loss. For more information, please visit www.sycomore-am.com.

This publication is not intended to be an offer or solicitation to buy or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and should not be construed as recommendations to buy or sell such securities.