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Boston Common Asset Management

PRI reporting framework 2019

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (C) Implementation: Integration of ESG factors

(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]

Issue areas such as the environment, human rights, labor relations and employment practices require a nuanced, judgment-based approach, framed in terms of attributes to seek and those to avoid. We typically seek companies with  superior records in environmental responsibility, labor relations, employment practices and human rights, and that display commitments to good standards and compliance, and  improving records in these areas. We also examine whether the standards of a company’s vendors broaden the impact of its policies. Conversely, we look to avoid companies that are egregious violators of regulations, exhibit a pattern of negligence, or have a deteriorating record on measurable conduct. We favor companies that have made changes in policies and programs to address past problems. These criteria may be industry-relative, such that a company is judged in relation to its peers, except human rights issues are judged on a case by case basis.

 

 

 


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.

          We compare our own internal ESG view of companies with the ratings or findings of multiple ESG research providers.
        

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

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.

          Internally prepared ESG sector analyses summarize ESG risks and opportunities for sectors and subsectors. The reports identify ESG leaders and include a proprietary ESG ranking.
        

09.6. Additional information.[Optional]

As previously stated, the integration of ESG analysis into our investment process has occurred since the inception of the firm. There is no  'separate process' to include ESG criteria in our portfolio construction or shareholder engagements - instead we have a culture of ESG integration.

We integrate ESG considerations into every step of our investment process. We apply our comprehensive ESG standards in analyzing securities for all strategies and leverage our collective decades of ESG investing experience to refine our ESG standards and make active ESG judgments. We address key issues related to corporate products, processes, and policies. We both seek leaders on ESG issues and avoid stocks of companies with unsustainable business models. We look at areas such as the environment, employment practices and labor relations, human rights and marketing safe and sustainable products and services. We conduct in-depth, bottom-up ESG research on new securities, supplementing our own research with information from external ESG data providers. We search for evidence of forward-thinking management of ESG issues and practices, as well as areas of ESG weakness and risks.  In parallel, we do top-down sector analyses to identify leading companies, key trends and risks and opportunities.


LEI 10. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

          Assessment of scenarios and probabilities, break-up value, anticipated re-rating of equity valuation.
        

10.3. Describe how you integrate ESG information into portfolio weighting.

Using the stocks which have been vetted and approved by both  financial and ESG research teams, our portfolio managers construct a diversified portfolio, in which each security usually has a weight ranging from one to three per cent of the total at purchase. We prefer to buy the strongest companies from an ESG perspective. We will not, however, invest in a company which, in our opinion, has a weak investment outlook even though it may have a strong ESG profile. In some industries we are currently unable to find enough companies with both strong investment and ESG profiles; we also buy companies that are 'better than average' but not leaders from an ESG perspective if we believe they are financially attractive.  Through our engagement we seek to raise the ESG profile of our holdings by urging the management of portfolio companies to improve their products, processes and practices throughout their value chain.

In the particular context of ESG risk, we build portfolios of companies that we believe have lower risk and higher opportunity. We are particularly mindful of low probability high-impact events for which there are few clear precedents.

10.4. Describe the methods you have used to adjust the income forecast / valuation tool

We use scenario analyses to project an optimistic case that reflects our assessment of future demand, improving technology, and/or a company’s market share.  Thus our assessment of revenue growth and profit margin expansion (in a Base case or Best case) may be higher than consensus 'sell-side' projections.

We identify and value under-priced or over-priced assets from an ESG vantage point.  For example, we consider Mohawk’s materials sourcing “best-in-class” from an ESG perspective. Over 50% of the company’s finished goods are derived from recycled materials, such as plastic bottles, tires, PVC pipes, and glass. Making some products from 100% post-consumer recycled PET plastic soda bottles. In fact, the company utilizes 20% of all recycled bottles in the US.

We believe the market generally does not correctly reflect environmental or social risks and opportunities. We focus on exploiting this market inefficiency by defining an investment universe based on quality ESG factors. In our view, even the best run companies are still vulnerable to low-probability high-impact developments. For example, companies producing the highest cost raw materials, operating in locations with egregious human rights abuses or unethical contracting practices could see their businesses threatened by a sudden paradigm shift.

10.6. Additional information. [OPTIONAL]


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