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Edinburgh Partners Limited

PRI reporting framework 2017

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (A) Implementation: Screening

(A) Implementation: Screening

LEI 06. Types of screening applied

06.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by


Screening is stock specific, each analyst is responsible. 

Screened by


As above, screening is stock specific, each analyst is responsible. 

06.2. Describe how the screening criteria are established, how often the criteria are reviewed and how you notify clients and/or beneficiaries when changes are made.

At Edinburgh Partners we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios and consideration of these issues should therefore be integral to our investment process and decision making. We are not, however, ESG specialists, nor do we have any plans to become ESG specialists.

Our assessment of the quality of investee companies in the areas of corporate governance and ESG is an integral part of the investment recommendation process. Research on each stock includes scores for ESG factors and these are considered in addition to the central and supporting valuation metrics when a stock is assessed as a potential investment.

Our process, divided into four distinct but interlinked stages, explicitly recognises that anything that influences the future profit stream of a company, whether macroeconomic or company specific, must be considered. Moreover, it emphasises that a number of influences will be common across companies and assume greater importance because of their pervasive effect:

1. Sift. This first stage narrows down the investment universe into a group of candidates that can be subjected to more rigorous testing. We analyse industry structure and the dynamics affecting the underlying companies, which sifts out those stocks that may be overvalued. Explicit assumptions about future conditions are made and become part of this sifting process.
The result is a group of stocks that appear to fulfil the valuation conditions necessary to produce appropriate returns.
2. Detail. Whilst general assumptions about future industry structure and evolution are used to whittle down the number of potential stocks to be examined, they are not substitutes for detailed stock-specific analysis. Even within a fairly homogeneous operating environment each company is different, and the end result of a scenario-based range of profit forecasts is dependent upon specific, bespoke analysis. Thus this second stage involves examining carefully the individual drivers for the companies that have made it through and, with this information, reducing further our list of candidates.
3. Cluster. While all companies are different, nevertheless there exist common elements that can lead to concentrations within portfolios. In our third stage, as a risk control before portfolio construction, we ensure that the common elements in an investment case are subjected to further testing before reaching the portfolio construction phase.
4. Construction. This is the final stage, where the individual and collective risk/reward profiles are balanced against each other to create a diversified but focused portfolio. Clusters of undervaluation are to be embraced, but only if they have passed all of the valuation and analytical tests and only if the overall portfolio risk/reward level is appropriate.

We incorporate ESG issues into steps 1 & 2 of our investment processes. All stocks which are researched are fed into our standardised research template, which comprises five years’ historic figures and five years’ forecasts.

For every company formally researched, their approach to ESG is reviewed and rated. This impacts which companies we invest in. Each of the investment team is responsible for allocating this rating as part of the research process.  We will engage with all companies we own, through our regular communication with them.

A 1-5 ranking is applied to each factor as defined below:

1 – Best in class

2 – A number of positive attributes

3 – Neutral

4 – Factors for concern

5 – Sell/ do not purchase.

These scores are another facet of the research we undertake and will potentially impact our central earnings forecast together with the scenario ranges around that central forecast. There is no prescribed model in terms of ratings. Instead we rely on the analysts’ experience when allocating a score to each factor.

If we rate a stock as a “5” on any of the ESG factors, we will not purchase it and may not even continue the research or produce a template.

At Edinburgh Partners our key objective is to provide our clients with excellent investment performance and we continually review the effectiveness of all our processes and staff including those involved in ESG research with a view to improving them if possible, with our standard templates being updated at least bi-annually.

We report our engagement and proxy voting activities on a quarterly basis to our clients as part of our standard reporting package.


LEI 07. Processes to ensure screening is based on robust analysis

07.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

07.2. Additional information. [Optional]

Each analyst prepares a stock template, it will be presented to the rest of the team at the weekly research meeting. All assumptions will be made explicit and will be scrutinised by the other analysts at this point. Only those stocks that pass this review process will progress to the Buy/Hold/Sell list. No stock can be included in a portfolio unless it is on this list.

LEI 08. Processes to ensure fund criteria are not breached (Private)