PM CAPITAL incorporate ESG issues through screening out particular sectors or by incorporating into our view of valuation. The valuation reflects our assessment of the quality of the business as well as our assessment of the internal culture, management and Board driving it.
PM CAPITAL recognises the implications of environmental, social and governance factors as integral market forces that ultimately represent components of a company's performance and valuation. Intensive research and analysis is a key component of PM CAPITAL’s investment process and these factors are components of this analysis. We believe that poor practice across these areas will inevitably result in lower investment returns and poorer outcomes for all stakeholders of offending companies.
PM CAPITAL considers factors in ESG issues through:
PM CAPITAL has a policy of exclusion when we feel that a company or sector can not as a result of its primary business activities be considered to be a Responsible Investment.
The exclusion of a stock or sector has a negligible effect on the size of the investable universe. PM CAPITAL is typically looking to hold 25-45 investment positions in its portfolios at any time. Some examples of sectors that are screened from our investable universe include tobacco manufacturers and weapons manufacturers.
While we exclude certain sectors, we acknowledge that this may in the short term affect investment performance on a relative basis. However, in the long term, we believe that the investment performance of quality business franchises will ultimately prevail and deliver above average shareholder value. Many people believe a negative screening process forces an unacceptable trade-off between ethical criteria and investment returns. For PM CAPITAL, research of sustainability factors within the context of an effective company risk management framework plays a key role in achieving our primary aim - that is, to maximize long-term returns for investors over a three to five year period.
PM CAPITAL has a policy of active engagement in which we use the fund's voting power in general meetings of company shareholders. PMCAPTIAL will generally oppose proposals such as:
election of inappropriate directors, particularly where there is not a majority of independent directors, where board quality is considered an issue, or where there has been excessive turnover of board / senior executives;
excessive remuneration arrangements, or a lack of alignment of executive incentive structures with that of shareholders and a company's operating performance;
appointment of auditors who are not independent.
PM CAPITAL's investment team regularly meet with and engage operational management of companies that we invest in. We also engage Board members when deemed appropriate. We do not engage third parties to represent our views. The kinds of issues that might be raised with companies are:
Assessed gaps or flaws in a company's risk management framework:;
Assessed weaknesses in Board composition;
Excessive executive remuneration arrangements;
Concerns about corporate governance practices;
Concerns about environmental practices;
Concerns about social issues;
As such, consideration is given to analysing a range of sustainable business practices as well as the financial impact of a company's environmental and societal risks over our investment horizon; in particular, climate change and occupational safety.