As earlier stated, our screening process is divided into two components/criteria. We use the exclusion criteria to ensure that we obtain an investable universe formed by socially responsible companies. On the other hand, the value criteria allows us to identify the best ESG performers and follow a best-in-class approach in every sector. With this, we aim to accomplish our objective of having an investment process that produces an investable universe composed by socially responsible companies and a selection of the best ESG performers in their sector. These strategy is drafted by the Control Commission of the pension fund and implemented by the fund managers.
Our screening for exclusion criteria seeks to weed out companies that engage in the following controversial activities:
- Inappropriate use of nuclear energy
- Toxic waste related activities
- Environmental Pollution
- Child Labour
- Universal Declaration of Human Rights breachment
- Child Pornography
- Manufacturing or sale of a finished product/strategic parts of cluster ammunition, anti-personnel landmines or nuclear weapons
- Irresponsible advertisement of alcohol, tobacco, pornography or gambling related products
The exclusion of these companies from our investable universe ensures that we avoid investments in those companies that do not have responsible business practices.
The value criteria screening allows us to apply our own standards to the information we receive from our ESG information third party provider. We obtain information from 5 different impact areas:
- Corporate Governance
- Human Rights
- Stakeholder Relationship
- Other Ethical Concerns
Our value criteria is the ESG rating that a company receives based on our analysis. This process involves using the ESG performance indicators we receive from our ESG information third party provider for the 5 different impact areas. This data is then subject to 2 considerations. First, we add weight to those specific ESG issues that are deemed as more important by our ESG/SRI Team in order to obtain a global picture of a company’s ESG performance. Secondly, we identify sector-specific issues incorporate them into our analysis to derive a fair ESG score. We add a second ponderation to the selected indicators that takes industry into account in order to ensure that our investment approach results in a best-in-class selection for every sector. Using emissions as an example, a company that underperforms in this matter in the Energy sector will be penalized in a greater manner than a company that underperforms in the Finance sector, thus taking into account the impact this industry has on the environment. Using these 2 weightings we obtain our final ESG score, which takes into account the importance of ESG issues and their impact at a sector level. This score leads us to select the best-in-class companies from our investable universe.