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Principal Global Investors

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
97 %
Percentage of active listed equity to which the strategy is applied
2 %
Percentage of active listed equity to which the strategy is applied
1 %
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.

The consideration of ESG issues for listed Equities (ex-REITs) primarily takes place within our equity investment process through our Global Research Platform which has shareholder value factors embedded within the process as well as through the fundamental research of stocks by our analysts.  The consideration of ESG factors for listed REITs are one of many investment factors that analysts consider when assessing a company.  ESG factors are incorporated into our company research reports, whereby companies with superior ESG ratings are viewed more favorably.

Our analysts are the best placed to determine the importance of such factors in relation to a specific company or industry. The analysts provide the essential insights into industry trends and company-specific considerations including ESG issues. These insights are crucial to the evaluation of sustainable competitive advantages and risks at a company-specific and industry level. Analysts have discretion to focus on the considerations and concerns they feel are most important and impactful to sustainable earnings, sentiment and relative valuation.  In addition, analysts have access to MSCI Research from which ESG related data can be extracted. Over 6,000 companies are covered in the MSCI universe, and available on the analyst's desktop.

Our stock selection approach focuses on the early identification of fundamental change and differentiating companies on the basis of sustainable earnings trends, investor sentiment, and relative valuation. Academic research and empirical data suggest that some ESG factors can have a material impact on each of these fundamental considerations. Therefore, we consider certain ESG issues to the extent they have material implications on these considerations, consistent with our fiduciary duty to help clients achieve their investment objectives and protect their economic interests.

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

The Screening plus Integration strategy is applied for those clients that have requested to exclude specific industries that do not align with their particular philosophy.  The stock selection process that incorporates ESG issues within our investment process as part of the fundamental research by our analysts remains consistent with other clients.  Negative screening is then applied to ensure the portfolio is compliant with client guidelines.

The Thematic plus Integration strategy is applied for Shariah-compliant investment solutions to global institutional investors. Alpha is generated primarily through the application of a consistent and disciplined stock and security selection process, which is guided by Shariah principles and an experienced and highly regarded
Shariah advisor.  The stock selection process incorporates ESG issues within our investment process as part of the fundamental research into stocks by our analysts.


LEI 02. Type of ESG information used in investment decision (Private)


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


(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

Negative/Exclusion screening is applied in several ways. We offer specific thematic products, for example Shariah, which screen on exclusionary factors. Client mandates may direct certain exclusions for their funds, typically also socially thematic. Multiple applications of ESG factors are reviewed as part of the qualitative research across all actively managed fundamentally influenced funds and are then applied in varying capacities by the PM and/or the Analyst.

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.

The exclusions are noted in the clients' Investment Management Agreements. These exclusions are applied through rules within our Compliance and Order Management System, Charles River. Securities are screened on a pre-trade basis to prohibit their purchase and holdings are monitored daily via the compliance feature of Charles River to ensure no excluded securities are held in these portfolios. Quarterly reports are sent to the client detailing their holdings and any exceptions to their established investment policy.  Screening criteria changes would only be made if the client initiated an amendment to the Investment Management Agreement.


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.

          Our OMS/Compliance system was updated during 2017 to a hosted solution; receiving updates to our Compliance system real-time instead of periodic software updates.
        

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 (Private)


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

The Socially themed funds Screening plus Integration strategy, is applied for those clients that have requested to exclude specific industries that do not align with their particular philosophy. The stock selection process that incorporates ESG issues within our investment process as part of the fundamental research by our analysts remains consistent with other clients. Negative screening is then applied to ensure the portfolio is compliant with client guidelines. Multiple applications of ESG factors are reviewed as part of the qualitative research across all actively managed fundamentally influenced funds and are then applied in varying capacities by the PM and/or the Analyst.

We also have the capability to offer a sustainability-focused proxy voting policy if a client wished to customize their proxy policy according to a sustainability theme offered by our service provider.


(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

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

The consideration of ESG issues primarily takes place within our equity investment process through our Global Research Platform which has shareholder value factors embedded within the process as well as through the fundamental research of stocks by our analysts.  Our analysts are the best placed to determine the importance of such factors in relation to a specific company or industry. The analysts provide the essential insights into industry trends and company-specific considerations including ESG issues. These insights are crucial to the evaluation of sustainable competitive advantages and risks at a company-specific and industry level. Analysts have discretion to focus on the considerations and concerns they feel are most important and impactful to sustainable earnings, sentiment and relative valuation.

Our stock selection approach focuses on the early identification of fundamental change and differentiating companies on the basis of sustainable earnings trends, investor sentiment, and relative valuation. Academic research and empirical data suggest that some ESG factors can have a material impact on each of these fundamental considerations. Therefore, we consider certain ESG issues to the extent they have material implications on these considerations, consistent with our fiduciary duty to help clients achieve their investment objectives and protect their economic interests.


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


LEI 10. Aspects of analysis ESG information is integrated into (Private)


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