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Catella Fondförvaltning AB

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
13 %
Percentage of active listed equity to which the strategy is applied
87 %
Total actively managed listed equities 130%

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

INTEGRATION

Sustainability factors are business-critical and may present both opportunities and risks in the light of higher global awareness of external challenges and clients’ greater insight into the matter. Catella Fonder signed the UN Principles for Responsible Investment (PRI) in September 2009 as one aspect of its aim to be a responsible investor and owner. We believe greater focus on sustainability is contributing to the value performance of the funds by improving our capacity to avoid risks and take advantage of opportunities. All companies have exposure to sustainability risks in some form and to varying extents. The degree of risk and its potential impact on the financial statements is affected by the company’s sector, where it does business and its ownership structure. This is why the base for our incorporation strategy is integration. Hence, all Catella Fonder’s portfolio managers incorporate sustainability considerations into their company analysis and investment decisions. The Company has appointed a sustainability manager to guide the ongoing portfolio management.

Generally speaking, we look for companies that are both driven by sustainability and can demonstrate attractive financial qualities and a clear profit and return trend that is underestimated by the market. We use the UN 2030 Agenda for Sustainable Development as a basis for identifying business models that can benefit structurally by offering a solution to one or more of the 17 Agenda 2030 Goals. We have identified four themes that we believe are potential sources of structural growth and profitability for companies exposed to these themes. Last but not least, we study the extent to which company financial statements are affected by sustainability. We enhance our understanding of the long-term potential of the business model by integrating sustainability with financial analysis. In addition to our own assessment of sustainability as a driver of WHAT a company does, we use ESG research from Sustainalytics* as a basis for evaluating HOW companies, regardless of whether they have sustainability profiles, are dealing with their ESG challenges.

SCREENING

We also avoid investing in UNglobal compact breaching companies and controversial sectors. To ensure that our funds are not involved in these companies the holdings and investment universe are screened twice annually by an external supplier, based on two aspects; 

1) The portfolio company’s adherence to global norms and conventions in accordance with UN Global Compact that identify portfolio companies involved in violations of international norms relating to the environment, human rights, corruption and working conditions.
2) The portfolio company’s activity within sectors that are controversial and products where the portfolio company is screened based on the sustainability policy of each fund.

ACTIVE OWNERSHIP

As shareholders, we can exert influence and encourage companies in a more sustainable direction by being active in board recruitment processes, at general meetings and in dialogue with company management teams, either independently or in coordination with other shareholder groups. Our actions are always based on an assessment of the conditions for achieving an outcome that benefits our unitholders. Our opportunities to exert influence depend upon the type of asset involved. As regards Swedish listed companies in which we are large shareholders, we have well-established forms of shareholder engagement. As for other investments, such as in foreign companies and companies in which we are an indirect owner, opportunities for shareholder engagement are more limited and coordination with other investors thus becomes even more important. Fund managers are responsible for the ongoing dialogue with the companies concerning both financial and ownership matters. To ensure consensus among all the funds with regard to key topics, Catella Fonder has appointed an ownership representative who, in consultation with fund managers, decides how the fund shall vote at general meetings.

 

 

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

We use a combination of all the strategies above for all actively managed Equity funds.

 

 


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 draw a clear line at companies that produce goods and services associated with harmful impacts on human health and the environment or that are addictive. This is consistent with our view that sustainable business creates value and competitive advantage over time.

1)      Controversial products; Tobacco, alcohol, gambeling, Pornography, weapons and coal

We exclude companies that produce tobacco, alcohol, gambling, pornography, weapons and coal, as these products are associated with harmful impacts on human health, are strongly addictive, or are associated with serious environmental impacts. The exclusion does not apply to service and distribution companies, as we believe these activities can be pursued in a responsible manner. Our focus is on the production of the controversial product or service. We have chosen not to consider third-party ownership because a financial investment is not categorised as production or distribution of the controversial product or service.

2)      Controversial secotors; Fossile fuels

3)      Norm Screening: The funds exclude companies that breach the 10 principles and 42 conventions of the UN Global Compact

We apply a zero tolerance threshold for the screenings above

Screened by

Description

Generally speaking, we look for companies that are both driven by sustainability and can demonstrate attractive financial qualities and a clear profit and return trend that is underestimated by the market. We use the UN 2030 Agenda for Sustainable Development as a basis for identifying business models that can benefit structurally by offering a solution to one or more of the 17 Agenda 2030 Goals. We have identified four themes that we believe are potential sources of structural growth and profitability for companies exposed to these themes. Last but not least, we study the extent to which company financial statements are affected by sustainability. We enhance our understanding of the long-term potential of the business model by integrating sustainability with financial analysis.

Screened by

Description

The funds exclude companies that breach the 10 principles and 42 conventions of the UN Global Compact (see appendix). Sustainalytics performs the assessment of whether the company is violating norms.

In our engagement strategy we prioritise dialogue concerning sustainability topics based on a couple of parameters.
• The company's performance in Catella Fonder’s E, S and G focus areas, where we focus on environmental policy, sustainable supply chains and efforts to prevent bribery and corruption.
• We use Sustainalytic’s research and examine the following parameters:
o Total ESG score - which provides an assessment of the company’s internal ESG work overall. We assess the company’s work, which we want to be on par with - or preferably above - its peer group. In this context, we pay particular attention to companies whose ESG scores are below 60.
o Level of controversy - which provides a degree of the company’s documented involvement in controversial ESG issues. We pay particular attention to companies at level 3 or above.

 

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

The screening criterias are set up initally to comply with our aims in the area and in dialoge with external supplyer to cover what we want. All our policys are reviewed yearly. We have not made any changes in the screening criterias and we have today no client with strict criterias where we have to inform about any possible 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.

05.2. 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.

05.5. Additional information. [Optional]

We are updated on changes on a continuing bases from our third party provider.


LEI 06. Processes to ensure fund criteria are not breached (Private)


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

Our funds have no special theme for our selection but rather a thematic framework. We look for companies that are both driven by sustainability and can demonstrate attractive financial qualities and a clear profit and return trend that is underestimated by the market. We use the UN 2030 Agenda for Sustainable Development as a basis for identifying business models that can benefit structurally by offering a solution to one or more of the 17 Agenda 2030 Goals. We have identified four themes that we believe are potential sources of structural growth and profitability for companies exposed to these themes. Last but not least, we study the extent to which company financial statements are affected by sustainability. We enhance our understanding of the long-term potential of the business model by integrating sustainability with financial analysis. 


(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]

All Catellas actively managed funds will take sustainability themes into account when assessing a company’s growth and profitability potential. 


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]

All holdings are screened twice a year to ensure compliance with our limits and restrictions. The screening gives us information about all companies in our benchmark and how they are performing with reference to internal ESG issues and risk areas, how the company is living up to international norms and conventions, as well as companies affected by our established limits at the fund level. All fund managers also use the research done by our external partner Sustainalytics as well as the research done by sell side analyst who are increasing focus on these issues. 

On a quarterly basis all fund managers participate in an internal sustainability seminar to delve deeper into the issues. During these seminars we evaluates corporate sustainability programmes and monitors current controversies and problems. We also use Sustainalytic’s research to discover which companies are at higher risk (low scores in relevant areas) or have potential to improve their sustainability reporting. Based on that information, we can identify investment candidates and prioritise future shareholder engagement.

All fund managers, sales and risk personnel have taken a sustainability course and we have internal and external workshops a couple of times per year.

 


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


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