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Yarra Capital Management

PRI reporting framework 2019

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 01. Percentage of each incorporation strategy

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
100 %
Total actively managed listed equities 200%

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

ESG research is ingrained in how our Australian equities analysts invest and are a mainstream part of the ongoing research process.

At the stock level our process includes:

  • Incorporating identification, analysis and assessment of ESG issues as part of the work undertaken by our analysts on every company we review.  We believe integrating this analysis into our research process ensures issues are identified and the implications for our investment more effectively captured in the valuation.
  • Incorporating qualitative assessment, which is critical when assessing non-financial risks.
  • Identifying ESG issues through extensive company and industry due diligence including a proactive program of engaging company boards, reviewing board structures/compensation guidelines and engaging third party consultants/brokers to undertake bespoke research. ESG issues identified are included in our one page investment thesis produced for each company.
  • Excluding investments in companies that we assess ESG issues to be sufficiently material.
  • Incorporating ESG issues identified and found not to be threshold issues into our valuation work. They may be included as a specific charge to the cash flows (e.g. a potential environmental liability) or an adjustment to the weighted average cost of capital calculation.
  • Including within our policy a requirement that we vote on all resolutions put forward by companies that we invest in. We incorporate the advice of an external research firm when deciding on how to vote, however we are not bound to follow their advice if we believe it is inconsistent with the overall objective of voting in our clients' interests.
  • Being committed to including ESG considerations in our brokerage panel structure as a member of ESG Research Australia we are committed to including ESG considerations in our brokerage panel structure.

We strongly believe that our own in-house analysis of ESG issues assists us in identifying independent insights. For example, improving ESG trends can drive investment returns as was the case with GPT in 2009 when the Board was renewed and restructured.

We take our responsibility as active owners seriously. Where ESG issues have been identified we consider it to be an important part of the process to discreetly communicate our concerns to the management or board of the company to seek progress on the issue. We have often found this to be a constructive process which results in more effective outcomes for all shareholders.

We also manage several strategies which screen stocks and industries based on certain exclusionary criteria (e.g. gambling, alcohol, tobacco) at our clients' request.

 

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


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

Our strategies can screen by stocks and/or sector at our clients' request.

Currently, we manage several separate mandates across two different strategies:

  • A strategy which invests in the S&P/ASX 100 and screens on a stock-by-stock basis
  • Socially Responsible Income Strategies focused on after-tax returns for a tax-advantaged investor, which excludes companies across the Alcohol, Gaming, Tobacco, Armaments & Pornographic Industries.

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

Screening criteria and revisions are driven by clients and established on a client-by-client basis.


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.

          Companies are screened based on the sector and industries in which they operate and/or according to specific client requests.
        

05.5. Additional information. [Optional]


LEI 06. Processes to ensure fund criteria are not breached (Private)


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the 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]

ESG principles are considered for both the qualitative and quantitative phases of our investment process, including through extensive company and industry due-diligence, our valuation framework where non-threshold ESG issues are identified, and through ongoing active engagement with companies. These principles are considered for every stock we invest in. As a result, all our equity portfolios are impacted by our ESG analysis.


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.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

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

09.6. Additional information.[Optional]

We systematically identify and assess ESG issues at both the stock level (as an input into our valuation work and a component of our one-page investment thesis) and at a sector and industry level (where we assess relevant ESG themes and their impact).

One-page investment theses are produced for all companies we hold, which we believe is an effective tool to monitor ESG issues.


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


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