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Morphic Asset 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 300%

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

We believe, based on both Morphic’s own experience and a growing body of academic research, that incorporating ESG considerations into the investment process can lead to more informed and holistic investment decision-making and, better investment outcomes for our investors.

Our approach to practising responsible investing comprises of four key components, of which the first two are relevant to this section (the others are 3. Engagement, 4. Transparency):

  1. Negative & Positive screening
  2. Integration of ESG considerations in our investment process – research, analysis & investment decision making

1. Screening

Negative screening

Morphic excludes direct investments which have as a significant part of their business activities that:

  1. Create un-remediated damage to land, air or water.
  2. Mine coal or uranium.
  3. Extract oil and gas.
  4. Manufacture:
    • Armaments
    • Tobacco products
    • Alcohol.
  5. Engage in, or are reliant on, logging of rainforest or old growth timber.
  6. Are involved in gambling.
  7. Use cruel or unsustainable methods to farm or produce fish or livestock.

This reflects the values of our clients and ourselves.

Norges Bank manages the world’s largest Sovereign Wealth Fund on behalf of the population of Norway. The fund is managed responsibly and implements an ethical (negative) screen. Norges has the advantage of considerable resource and actively publicises its list of excluded companies (and those under observation) as well as the reasoning for each decision (Norges exclusion list). Consistent with the responsible investing principals of engagement and transparency, we are happy that our Funds can also benefit from their important work. Therefore, any stock excluded by Norges will automatically be excluded from our Funds, including where possible eliminating any indirect exposures we may have.

Positive Screening

Morphic seeks to invest in businesses which:

  1. Find solutions for reducing the emission of greenhouse gases.
  2. Reduce damage to water supplies.
  3. Work to improve air quality.
  4. Provide alternatives to deforestation.
  5. Otherwise enhance the human experience without creating future problems for mankind or the environment.

At all times Morphic will ensure that at least 5% of every Fund’s net assets are invested in relevant companies. Morphic usually holds more than 5% in these sectors but, with our mission to deliver risk-adjusted returns over the long term in mind, there are often times when opportunities in these areas are unattractive.

2. Integration of ESG Considerations in our Investment Process

Morphic is a signatory of the Principles for Responsible Investment which entails an explicit commitment and the adoption of six principles which we believe will improve our ability to meet commitments to our investors as well as better align our investment activities with the broader interests of society.

Morphic will ensure that all investment professionals are aware of ESG considerations to ensure that these principles are adhered to.

Additions to investment staff will be provided with Morphic’s Responsible Investing policy.

Our Responsible Investing policy will be reviewed on a regular basis and amended to reflect developments in best practice and our commitments to PRI and industry peak bodies (such as RIAA).

Any changes to this policy will be advised promptly to all members of the Morphic investment team.

Integrated ESG Analysis in Stock Research

Morphic conducts an “ESG Audit” to aid the identification and consideration of ESG factors and therefore to complement the research and analysis of potential investments (long and short). The purpose of this process is to identify the material ESG risks and opportunities related to the particular potential investment. This process is completed concurrently with the company-specific research and analysis process and feeds into the final investment decision.

The identification and consideration of material ESG factors is ingrained in the various ways in which we seek to understand how businesses work and forms part of the fundamental research on every investment case along with traditional financial and business factors. These factors are integrated into both the qualitative and quantitative analyses that ultimately lead to an assessment of the company’s fair value, and which then informs discussion of the validity of the original investment thesis. The final investment decision explicitly considers the material ESG risks that are identified during the research process.

ESG Audit

When identifying the potential material ESG risks and opportunities of an investment, Morphic’s approach requires the consideration of a series of generic questions covering the analysis of a Company’s management and strategy, financial statements, industry and macroeconomic factors, and valuation considerations. Whilst similar to the questions that are typically addressed in traditional financial and business analysis they are designed to help identify relevant linkages between ESG factors and the Company.

The questions are exhaustive and encompass the following aspects of analysis (as appropriate to the particular company):


  • Strategy & Management
  • Financial Analysis of Revenue
  • Financial Analysis of Costs
  • Financial Analysis of Assets
  • Financial Analysis of Liabilities
  • Financial Analysis of Cash Flow
  • Valuation


  • Industry Analysis


  • Macroeconomic considerations

ESG Materiality

The final stage of the ESG audit is to judge the materiality of the issues that have been identified as being relevant to the particular company.

The Sustainable Accounting Standards Board (SASB) has led the movement to implement consideration of ESG factors into accounting standards. As part of this effort, SASB has published the “Materiality Matrix” which identifies relevant ESG factors according to industry and highlights materiality.

In judging the materiality of any relevant issues, as well as relying on our own knowledge and experience, the ESG Audit is required to reference the relevant sections of the SASB Materiality Matrix.

Documenting the Process

Having completed ESG audits, analysts are required to summarise the material ESG risks and opportunities in their company research recommendations, which are then rigorously discussed and debated with other members of the investment team.

For the portfolio holdings, ESG audits are updated in light of any new relevant information or at a minimum of once a year.

Please see for further details.

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


See earlier description of negative and positive screen in section LEI 01.2.

Screened by


See earlier description of negative and positive screen in section LEI 01.2.

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

The screening criteria were established in consultation with clients at the launch of the business. Ongoing engagement with clients enables changes in values/views to be reflected in the screening process and any such changes will be reported to all stakeholders via an amended RI Policy document and other relevant content such as commentary in regular client reporting and blogs.


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.

          Excluded stocks are screened using the Bloomberg platform and implementing the GICS classification. For external assurance purposes the screening method is fully documented.

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.

05.5. Additional information. [Optional]

Every new addition to our portfolio is subject to an ESG analysis.

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]

Morphic seeks to invest in businesses which:

  1. Find solutions for reducing the emission of greenhouse gases.
  2. Reduce damage to water supplies.
  3. Work to improve air quality.
  4. Provide alternatives to deforestation.
  5. Otherwise enhance the human experience without creating future problems for mankind or the environment.

At all times, the Manager ensures that at least 5% of the Funds' net assets are in these themes and rthe relvant sectors.

(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




Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

ESG integration is firm-wide and therefore applicable to all portfolios.

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]

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