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Greencape Capital

PRI reporting framework 2019

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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.

ESG-related risks and opportunities are identified on a case-by-case basis by all members of the investment team and are identified through their investment process. Through our extensive company visitation effort and targeted research agenda, Greencape has a heightened ability to source proprietary information from multiple sources on key factors which may influence a stock. Examples of such sources include a company's competitors, customers, suppliers, management, board, past employees, industry bodies, trade journals, regulators, government agencies and companies in other industries or geographies with similar business models.

 

Our investment process involves assessing and rating four criteria: Shareholder Stewardship, Business Evaluation, Valuation and Market Milestones. The analysis is ultimately condensed down to a single stock recommendation ranking, facilitating both transparency and accountability.

 

We embed consideration of ESG risks in our process rather than overlay an ESG process and this has always been a part of our investment approach. As mentioned our investment process evaluates (and scores) the criteria listed below for all stocks we analyse. At each stage of the process we are considering and analysing issues/risks/opportunities which incorporate ESG issues as follows:-

 

Shareholder Stewardship: We consider for example

- Corporate governance- this involves an assessment of sustainability issues/risks and opportunities.
- Remuneration - this considers the alignment of remuneration with those of shareholders and the investment horizon over which behaviour and results are measured.
- Management and board effectiveness - this considers track record and reputation in acting in the interests of shareholder value creation.
- Corporate culture - we assess accountability, transparency and consistency of message through an organisation.

Business Evaluation: We consider the sustainability of returns through an economic cycle (typically 5- 10 years).

Valuation: We value each stock in our universe. We typically favour using the Discounted Cash Flow (DCF) valuation methodology which typically involves a 10 year forecast. This forces us to consider medium to long term sustainability issues and potential liabilities which include ESG issues.

Market Milestone: We consider the likely impact on a share price from the upcoming news flow likely to be released on the stocks we assess. This includes ESG issues (i.e. Environmental issues with mining related companies) which may influence market sentiment towards a stock.

 

We are particularly focused on governance issues, including capital allocation policies and executive remuneration structures. Capital allocation decisions can, in our view, have a very material impact on the future performance of a stock, and we are heavily focused on assessing company management's track record of allocation decisions, and strategy for the business going forward. Executive remuneration arrangements are also of importance, as they influence behaviour and culture. In general, we advocate for structures that promote a focus on long-term shareholder value creation and have appropriate and quantifiable metrics in place to assess performance.

 

Any relevant ESG issues are incorporated into the risk profile (positive or negative) of a company either in the qualitative assessment of the company or directly in the valuation parameters which can influence conviction and hence portfolio weight. An example of avoiding stocks re ESG is Crown. It didn't pass thru our governance assessment re shareholder stewardship. We also think the blatant focus on gambling - especially pokies and online betting has some social brand & regulatory risk.

 

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

We construct our portfolios from the bottom-up, based on detailed stock-level analysis. As such, we do not generally consider the portfolio in terms of exposure to thematic or trends. That said, we are conscious of aggregate exposures and biases in our portfolio and monitor these closely to ensure they remain acceptable and consistent with our bottom-up views.


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)


(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.

09.4. 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 09.3  Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

Greecape currently access Governance and Ownership Matter's ESG ratings quarterly to inform and updatethier ESG integration strategy.
 


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


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