As long term investors, ESG is fully integrated into their investment process and forms part of the mosaic for any investment case in understanding the long term sustainability of companies and their business worth. In valuing businesses, allowance for ESG-related factors are taken into account predominantly by adjusting the discount rate applied to their normalised earnings. They thus implicitly build in the risks relating to environmental, social and governance considerations in the ratings of the businesses they analyse. Where they can, they explicitly allow for ESG costs in the modelling of the company earnings. For debt securities, they assess the impact on issuer cash-flows and ability to repay debt and require additional credit spread to compensate for the risk. They do not exclude investments in companies that perform poorly on ESG screens, they require a greater risk-adjusted upside or a higher yield before investing. They include an ESG section in all initiation reports.
As ESG is integrated into our philosophy and processes we do not separate this when training staff. Guidance is provided by senior members of the investment team on how to address sustainability issues. Each investment report on a company is prepared by the responsible analyst and he or she is required to provide a summary of the main ESG issues, discuss their materiality to the investment case and provide his/her view on whether these factors impact the overall valuation of the business positively or negatively.
Coronation has a single investment philosophy on which all products are managed and it is deeply ingrained within the entire Coronation investment team. This is the exact same philosophy by which we have been successfully managing money in South Africa for over two decades.This process is overseen by the CIO, together with other senior members within the investment team.
The Board has constituted three sub-committees, namely, the “Audit and Risk Committee”, the “Social, Ethics and Transformation Committee” and the “Remuneration and Nominations Committee”. The Social, Ethics and Transformation Committee is chaired by an independent non-executive director, which is consistent with the recommendations of King III. The Committee serves as the Social, Ethics and Transformation Committee for the group, subject to any local law requirements. The Committee’s general mandate is to assist the Board in discharging its duties relating to the reviewing and approving of policy, strategy and structure to manage transformation, social and ethics issues in the company. The Committee’s objective is to ensure that high ethical standards are applied in all areas of the business. The Committee oversees the monitoring, implementation, assessment and measurement of the company’s activities in the following key areas: Ethics and conduct; Environmental, social and governance; Transformation; Human resource development; Enterprise development; and Corporate social investment. The Committee relies on management for the implementation of strategies and initiatives, of which the primary contributors are the Executive Committee, transformation task team, employment equity and corporate social investment committees.