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GQG Partners

PRI reporting framework 2019

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

ESG incorporation in actively managed listed equities

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 integrate ESG considerations in our fundamental, bottom-up analysis of potential portfolio companies. We believe earnings drive stock prices and we view ESG shortcomings as a material risk to a company’s ability to achieve sustainable earnings over the long term. As a result, our bottom-up fundamental analysis encompasses non-financial considerations. Issues such as labor relations, corporate culture, environmental responsibility, and overall goodwill are integral to our analysis and are given meaningful weight in our valuation of a potential portfolio company. Conversely, in our experience, companies that seek industry leadership in these areas often (we believe not coincidentally) have some of the best management teams and most durable competitive advantages.
 

Our Portfolio Manager, Rajiv Jain, has over 20 years’ experience investing in global equities, and is aware of the corporate sustainability challenges and their impact on a company’s valuation, particularly in emerging markets. He purposefully hired two analysts with experience in investigative journalism to vet aspects of a company that are often overlooked by classic Wall Street research. Investigating ESG and non-financial issues and assessing a company’s less tangible, non-traditional assets are an important part of the analysts’ role. These analysts interview regulators, unions, former employees and customers of target companies to enhance our understanding of a company’s management culture and the broader eco-system within which it operates. We also have a research analyst with a deep accounting background. His focused financial statement analysis assesses how aggressive or conservative a management team is with their financial decisions. This helps avoid companies that take undue risks to meet short-term financial projections, but can also be a leading indicator for human resources and compensation related issues, environmental impacts (via unexpected expenses and legal fees), and broader governance issues.
 

We also subscribe to ISS-Ethix, which provides ESG and reputational research. These ESG ratings are included and used as an informative source within our initial stock screening results. Beyond being built into our initial screens our analysts use this resource to review the ISS-Ethix ESG ratings and sub-ratings to potentially guide them toward additional ESG targeted research. In our investment thesis write-ups, analysts include a section that addresses any ESG/corporate responsibility concerns which are considered in our Portfolio Manager’s investment decisions.

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

Our investment process commences with a screening process that is designed to generate a short list of around 350 companies across all sectors that demonstrate high and stable return on equity/return on assets (ROE/ROA). We believe that highly levered companies (relative to their peers) are indicative of a governance culture that is not in the long-term interests of shareholders. We therefore screen out companies at this stage where the high ROE/ROA can be attributed to excessive leverage. We subscribe to ISS-Ethix for reputational and ESG research and company ESG scores are integrated into this initial screening process.


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

We have certain accounts where we screen out companies considered to be Tobacco companies or those involved in cluster munitions.

Screened by

Description

The screens are used against our investable universe for all our funds.

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

We do not proactively notify clients when changes are made to screening criteria. If a client were to inquire about the screening criteria, we would inform the client of changes. 


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.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.5. Additional information. [Optional]

The screens are run on a quarterly basis and refreshed with updated ESG scores. 


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]


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.

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

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)


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