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Dana Investment Advisors

PRI reporting framework 2018

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ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
Percentage of active listed equity to which the strategy is applied
Percentage of active listed equity to which no strategy is applied
Total actively managed listed equities 100%

01.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

ESG integration is used for alpha generation and risk reduction. Social screens (exclusions) are often client driven values that we incorporate in our ESG Strategies. Many of our clients are mission-oriented and embedding these social values is critical. We find that over time these negative exclusions have had a neutral impact on performance over time. We have other equity strategies that are ESG integrated and do not include any social screening (exclusions). There is a growing body of rigorous quantitative evidence and case studies that support ESG integration as risk reducing and return enhancing, particularly when material metrics can be identified. Thus, we see growth opportunities in both integration and integration combined with screening approaches, particularly as investors become more aware of these issues and their materiality. 

 

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

We utilize a proprietary quantitative model that draws on over 120 E, S and G factors from third party vendors. The E, S, and G pillars are equal weighted using a geometric mean to calculate relative ranks for the securities. Our Portfolio Management team then evaluates companies that rank best relative to sector peers. The greatest ESG integration with financial factors occurs here as the team ascertains the future growth and risks of each company. Thematic issues such as demographics, technological disruption are factored in as part of the fundamental analysis. Portfolio construction includes sector neutral weightings -- a key aspect of our risk control. Social ESG Strategies include holdings with strong ESG ranks within the entire universe and specific sector at compelling valuations relative to peers. These Strategies also exclude companies or industries according to client guidelines, such as weapons manufacturers, gambling, or tobacco securities. ESG analytics and research are utilized for other equity strategies that do not have social exclusions. We utilize the same ESG metrics for all Strategies, particularly our Large Cap Equity Strategy where the overlap with our Social ESG Strategies is high and the benchmarks are the same (primarily S&P 500 Index).


LEI 02. Type of ESG information used in investment decision

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

02.2. Provide a brief description of the ESG information used, highlighting any different sources of information across your ESG incorporation strategies.

We utilize a variety of third party vendors for ESG information, including ISS, MSCI, Trucost, Bloomberg, Sustainalytics, Center for Political Accountability, CDP and CSRHub. From most of our vendors, we use selected raw data and scores within our proprietary quantitative ESG models. Other information is utilized for additional details on specific E, S or G factors. We find that using multiple sources of ESG data is useful to identify controversial or contradictory arguments that we then take a deeper dive on in our internal research. Also, vendors have different strengths and biases (i.e. large cap bias, policies versus metrics) and we take these into consideration in our models and fundamental analysis.

02.3. Indicate if you incentivise brokers to provide ESG research.

02.5. Additional information.[Optional]

Our use of brokers for ESG research is negligible at this time.


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

Our Portfolio Managers, Analysts, and Portfolio Specialist meet regularly to discuss material changes to ESG ranks, trades and rationales, advocacy updates, and more. Our ESG model and fundamental analysis are available to the team online and updated routinely. Team members from all roles often participate in engagement conversations with companies.


(A) Implementation: Screening

LEI 04. Types of screening applied

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

Type of screening

Screened by

Description

Adult Entertainment, Alcohol Manufacturing with revenue bands for inputs and wholesaling, Gambling, Military & Weapons (nuclear, landmines, cluster munitions, firearms or ammunition manufacturing; revenue bands for conventional weapons), Tobacco (revenue bands for tobacco supplier). Our Carbon Sensitive ESG Strategy excludes the energy sector, otherwise our Strategies are sector-neutral.

Screened by

Description

We utilize a proprietary quantitative model that draws on over 120 E, S and G factors from third party vendors. Environmental factors include a variety of climate change impacts, metrics, and targets (i.e. direct and indirect GHG emissions, regulatory actions or fines, disclosures and policies. Examples of Social criteria include various measures of workforce diversity, human rights policies, product and workplace safety, labor rights and policies, and animal testing. Governance issues include auditing and accounting policies, board composition and independence metrics, and CEO compensation (with absolute limits, not only relative).

04.2. 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.

Positive screening was initially established using a consensus of early client goals and issues reflected in social indexes (early 2000). Positive screening has evolved based on availability of new data, new or changing concerns of our clients, impact on long-term sustainability of companies, and materiality on future financial results or business risk. We are constantly testing new factors and evaluating new sources of information. Similar to positive screening, our negative screening drew on a consensus of our early client objectives and leading SRI indexes. A second set of criteria was established to be consistent with the USCCB socially responsible investing guidelines (for Catholic clients). A third criteria set was established to meet client requests to exclude fossil fuel producers (Carbon Sensitive). We monitor the existing positive and negative screening and its implementation and maintain ongoing dialog with our clients regarding factor evolution, interpretations, changes or thresholds. 

 

 


LEI 05. Processes to ensure screening is based on robust analysis

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

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached

06.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

All client guidelines are entered into Dana’s automated IT systems (InData’s Compliance module). On a daily basis, automated “exception reports” are generated and emailed daily to Dana’s Portfolio Management and Trading teams. Reports that identify a breach in fund criteria are then also reviewed daily. If a breach does occur, Portfolio Managers and Traders will meet to review any potential breach. Depending on the circumstances, any breach would either be immediately liquidated, or if it’s in the client’s best interest the breaching securities positions will be liquidated in a controlled fashion.

06.3. Additional information.[Optional]


(C) Implementation: Integration of ESG issues

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate which ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues Proportion impacted by analysis
Environmental
Social
Corporate Governance

08.2. Additional information. [Optional]


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information.[Optional]


LEI 10. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2b. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

10.4b. Describe the methods you have used to adjust the income forecast / valuation tool

Our quantitative models are largely based upon historic financial and ESG data. Our fundamental analysis confirms or refutes a company’s ability to maintain or increase future earnings and cash flow growth. Companies that are proactive in deploying strategies to address resource scarcity via supply chain management, for example, or developing innovative, sustainable products to meet changing consumer demands are factors that influence both costs and revenues. An evaluation of future risks also impacts our analysis. The most material impacts thus far have been in situations where there are systemic risks, often for an industry or sector, as with the energy sector or with "big" banks. Climate-related incidents (drought, fire, hurricanes) also had bottm line impacts. We are seeing more quantifiable ESG factor analysis that shows a variety of ESG material impacts and expect this will grow over the next five years.

10.5. Additional information.


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