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.
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.
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.