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CCLA

PRI reporting framework 2019

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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 100%

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

Our experience suggests that conventional financial modelling only gives part of the answer as to what makes a company a good investment. So, before investing, we carefully assess the environmental, social and governance (ESG) standards of all companies.

We begin by screening out companies that:

  • are involved in the production of weapons banned by international treaties (specifically landmines and cluster munition). We believe that these products are unacceptable and place our clients' reputations at risk
  • generate more than 5% of their revenue from the extraction of oil sands or energy coal as the most carbon intensive fossil fuels. We believe that these products are the most at risk, immediately, from the transition to a low carbon economy and are best removed from our investment universe.
  • fail our clients' ethical investment policies

Following implementing our responsible investment screens we analyse remaining companies approach to ESG risk management. We believe that companies in the most carbon intensive sectors or with either the poorest standards of corporate governance/other unmitigated ESG risks are likely to underperform over the medium to long-term. For this reason, our integration policies identify and then remove these companies from all of our portfolios. 

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

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

02.2. Indicate if you incentivise brokers to provide ESG research.

02.4. Additional information.[Optional]

In implementing our Responsible Investment policies CCLA utilise a number of different data sources, types and modes of analysis.

We use ratings generated by specialist ESG data providers. This provides an independent 'snapshot' of companies' ESG standards and allows us to communicate directly comparable portfolio analysis with our clients. To ensure that we are sourcing the best possible data we formally review our providers every three years. 

We also use external data to implement our ethical and responsible investment screens. This allows us to provide our clients with the confidence that their rules are being implemented in line with independent and objective data.

We supplement the data from our suppliers through in house analysis. This takes a number of forms. First, we merge several external data sources to create a bespoke corporate governance rating. Second, we gather raw data from company annual reports, and engagement with companies, as part of our qualitative ESG analysis. Finally, we recognise that not all companies face the same level of ESG risk. For this reason, we implement specialist research a number of key sectors. This includes: companies in the extractive industries, those generating power from nuclear industries and chemical sector companies.


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

We recognise that stewardship is an integral part of investment management. For this reason, our stewardship priorities are set in conjunction with portfolio managers and analysts and they are involved in (or updated on) all discussions with companies.

Engagement progress is systematically shared in a number of ways:

First, during the reporting year we developed a new 'CRM system' for storing details of engagement and the progress that it has made. To enable proper sharing, this is available to all members of the investment and ethical and responsible investment teams.

Second, we have regular formal and informal meetings (including the bi-annual ethical and responsible investment committee) between stewardship specialists and investment managers. These set priorities and monitor engagement progress. 

Finally, within our new corporate governance rating system we award (or detract) companies points based upon the progress and quality of engagement. This can lead to a company recieving a score that mandates divestment.


(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

CCLA does not invest in any company that produces cluster munitions and/or landmines (as per the definitions used and information provided by our global screening provider). We believe that these products are not acceptable and pose significant reputational risk.

CCLA won’t buy or hold pure play coal or tar sands investments for its funds and discretionary investment clients. This is in line with our assessment of the future prospects for these companies.

Screened by

Description

CCLA undertake a three year engage/divest cycle with companies who have not responded to allegations of non-conformity with international norms (ILO Core Labour Standards, UN Guiding Principles for Business and Human Rights (GPBHR), GHG emission disclosure and severe incidents that threaten biodiversity). This process is driven by data provided by MSCI's 'ESG Controversies' product, which researches company public documents, media sources and NGO publications to:

Assess controversies based upon their severity 

Assess the status of the case 

Identify whether the case relates to company management problems 

Provide clients with data as to whether a company has 'Acknowledged or settled', 'Denied Allegations' or provided 'No Response' to the controversy.

 

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

All of our ethical and responsible investment priorities are made available on our website. We notify clients of changes to our approach by way of specific communication or within quarterly client reports.


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.

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

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

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

CCLA's responsible investment screening is based upon data provided from our third-party data providers. These are currently FTSE, MSCI and Sustainalytics.

We take a number of steps to ensure that this data is accurate: 

First, we appoint our data providers every three years through a rigourous tender process. This enables us to identify the best possible providers and stay up to date with changes in the ESG data market.

Second, whilst we expect our data providers to routinely check their findings with underlying entities, we routinely audit the accuracy of the research and periodically forward their findings to the researched companies. Where we identify discrepencies we inform the data provider.

Third, the data is uploaded into our order management system. This blocks trades, made in error, that would contradict either our responsible investment or our clients' ethical investment policies. This data is updated in our internal order management systems every month. This ensures that CCLA's investment process is informed by the most up to date information possible.

Finally, we undertake regular audits of the process on a weekly, monthly and annual basis.


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

06.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

Ensuring accurate screening of our Funds is a key priority for CCLA.

Our process is based upon accurate data, sourced from a third party, that is built into our Order Management System. This prevents restricted stocks being purchased in error.

We have weekly, monthly and annual audit processes to review the function of this system. In the unlikely instance that a restricted stock is purchased this will be identified and sold. To ensure that our clients are not disadvantaged we compensate the fund for any expenses occured.

06.3. Additional information.[Optional]


(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]

Our experience suggests that conventional financial modelling only gives part of the answer as to what makes a company a good investment. So, before investing, we carefully assess the environmental, social and governance (ESG) standards of all companies.

We believe that companies in the most carbon intensive sectors or with either the poorest standards of corporate governance/other unmitigated ESG risks are likely to underperform over the medium to long-term. For this reason, we have strict processes to identify and then, through integration, remove these companies from all of our 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.

09.3. 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 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.

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

Our approach to ESG integration impacts upon portfolio weightings in a number of ways, including but not limited to, the following: 

First, our responsible investment screening approach removes prospective investee companies from our universe. For instance, our climate change and investment policy precludes investments such as BHP and Anglo American due to the revenue that they currently derive from the extraction of thermal coal.

Second, our integration policy identifies companies with the poorest standards of corporate governance and/or the highest levels of unmitigated ESG risks. These companies require the approval of the Chief Investment Officer and the Head of Ethical and Responsible Investment. Again, this acts as a preventative barrier to stop them entering our clients' portfolios.

Third, our climate change and investment policy, informed by routine scenario analysis, identifies sectors and companies that are most at risk from the low carbon transition and has set a maximum portfolio carbon footprint. For this reason, CCLA continues to be significantly underweight the oil and gas sector and other carbon intensive industries.

Finally, the ESG standards of our portfolios are monitored by our bi-annual Ethical and Responsible Investment Committee. 

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

Due to the risk of stranded assets identified within our climate change modelling we alter the anticipated future value of oil, gas and coal companies based upon IEA Scenarios.

10.5. Describe how you apply sensitivity and/or scenario analysis to security valuations.

See answer to 10.4

10.6. Additional information. [OPTIONAL]


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