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Liontrust Investment Partners LLP

PRI reporting framework 2019

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (A) Implementation: Screening

(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

The Sustainable Fixed Income investment team also screens to exclude the following businesses from its Sustainable Future fund portfolios: http://www.liontrust.co.uk/handlers/DownloadDocumentsHandler.lion?itemids=fc1bfe8f-110d-495b-8051-f448e9602d98

The team looks at three key sustainability themes that cover ESG issues and how businesses will be affected by these trends. The team identifies companies that are set to benefit from these longer-term changes and invests if, following fundamental analysis, the team believes they are undervalued.

The team analyses how a company's ESG factors affect its valuation. For example, the team assesses relevant factors like pollution incidents, staff satisfaction and carbon emissions. Companies which have integrated these issues tend to have higher quality management and therefore they are more likely to prosper from a business perspective. The team uses a sustainability matrix based on product sustainability (A-E) and management quality (1-5).

All Liontrust funds have no or very limited exposure to securitised debt.

04.3. Additional information. [Optional]

The Sustainable Fixed Income investment team also screens to exclude the following businesses from its Sustainable Future fund portfolios; the team has thresholds on the revenues that companies can derive from unsustainable and unethical activities and still be included in their funds. From July 2018, all funds managed by the team moved from a threshold of 10% of revenues from activities such as tobacco, gambling, intensive farming, weapon systems and nuclear to 5%.

Alcohol - Only invest in alcohol companies that have policies and practices to address responsible marketing, consumption and sale of their products.

Animal Welfare -

Excludes companies that derive >5% of turnover from the provision of animal testing services.

Excludes companies that derive >5% of turnover from the:

manufacture of cosmetics or cosmetic intermediates that are tested on animals

retail sale of own-brand cosmetics that are tested on animals

manufacture of household products that are tested on animals unless the company policies and programmes to minimise testing are considered good practice.

Climate Change -

Excludes companies that derive >5% of turnover from the extraction and production of coal, oil, and natural gas.

Excludes companies that derive >5% of turnover from airlines and the manufacture of cars* and trucks (*unless they are specialised in making components that improve the efficiency or safety of cars).

Excludes companies that derive >5% of turnover from the production of energy intensive materials unless they are making significant efforts and investment to make their processes more efficient and less energy intensive.

Excludes forestry and paper companies that do not have policies and practices in place to ensure that forests are managed in a sustainable way.

Excludes companies that are involved in the deforestation of primary or virgin forest or illegal logging practices.

Excludes companies that derive >5% of turnover from the management or ownership of gambling facilities.

Genetic Engineering - Excludes companies involved in the uncontrolled release of genetically engineered organisms into the environment.

Human Rights - Assess companies on a case-by-case basis and encourage those that are operating in weak governance zones to demonstrate their commitment to the integration of human rights standards into business practices and to put in place appropriate human rights policies, systems and reporting.

Exclude companies judged not to be addressing serious allegations (narrowly interpreted) of violations of international human rights laws and standards including the OECD Guidelines for Multi-National Enterprises (2000) and the UN Global Compact (2000), among others.

Infrastructure Projects - Excludes companies that are directly involved in the construction of large dam projects in developing countries if those projects have not met best practice standards.

Will only invest in companies involved in the building of large scale infrastructure projects such as roads, airports or dams if they are viewed as leaders within their sector with respect to stakeholder dialogue, environmental management and social and environmental impact assessment.

Intensive Farming -

Excludes companies that derive >5% of turnover from intensive meat and fish farming.

Excludes companies that derive >5% of turnover from the manufacture of chemical pesticides.

Excludes companies that derive >5% of turnover from the fur trade.

Labour Standards - Assess companies on a case-by-case basis, and encourage those that are operating in weak governance zones to demonstrate their commitment to the integration of

International labour standards into business practices by putting in place appropriate labour standards policies, systems and reporting.

Exclude companies judged not to be addressing serious allegations (narrowly interpreted) of breaches of labour standards such as those on child labour, forced labour, discrimination, union rights, working hours and health & safety.

The international laws and standards, which we refer to when making this assessment, include the conventions which are regarded and promoted by the ILO as "core" conventions. In summary these are: child labour; forced labour; equal opportunities; freedom of association/collective bargaining.

Nuclear -

Excludes companies that derive >5% of turnover from owning or operating nuclear power stations, unless the company has made significant investment (>5% generation capacity) in renewable energy and does not have the option to divest its nuclear capacity.

Excludes companies that derive >5% of turnover from uranium mining or reprocessing of nuclear fuel.

Excludes companies that derive >5% turnover from the development or manufacture of non-safety related products for nuclear power plants.

Ozone depleting substances - Excludes companies that derive >5% of turnover from the manufacture or sale of ozone depleting substances.

Pornography - Excludes companies that derive >5% of turnover from the production or distribution of pornographic material.

Excludes companies that derive >5% of turnover from owning or operating adult establishments.

Tobacco - Excludes companies that derive >5% of turnover from the manufacture or sale of tobacco products.

Weapons systems -

Excludes companies that are major producers of full weapons systems or critical components of weapon systems. Major producers are defined as having >5% of turnover and/or >£100m revenue from offensive weapons systems.

Excludes companies with confirmed involvement in the manufacture of anti-personnel mines or cluster munitions, or their critical components, as defined by the Ottawa Mine Ban Convention and the Oslo Convention on Cluster Munitions.

Companies judged not to be addressing serious allegations (narrowly interpreted) of violations of international human rights laws and standards including the OECD Guidelines for Multi-National Enterprises (2000) and the UN Global Compact (2000), among others; and companies judged not to be addressing serious allegations (narrowly interpreted) of breaches of labour standards such as those on child labour, forced labour, discrimination, union rights, working hours and health safety.

Occasionally, positive benefits may be considered to outweigh the negative activities outlined in the team's screening criteria. In these cases, a balanced judgement is made on the recommendation of the sector specialist with oversight from the independent external advisory committee.

 


FI 05. Examples of ESG factors in screening process (Private)


FI 06. Screening - ensuring criteria are met

06.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening?

other description

          The Sustainable Fixed Income Investment team engage a third party provider Ethical Screening, to check portfolios regularly to ensure compliance.
        
Positive/best-in-class screening

other description

          The Sustainable Fixed Income Investment team engage a third party provider Ethical Screening, to check portfolios regularly to ensure compliance.
        
Norms-based screening

other description

          The Sustainable Fixed Income Investment team engage a third party provider Ethical Screening, to check portfolios regularly to ensure compliance.
        

06.2. Additional information. [Optional]

For the Sustainable Fixed Income Investment team, as well as internal checks, Ethical Screening provide an external assessment of our fund holdings to ensure that companies held do not conflict with or breach otheir screening criteria.

The Sustainable team has up to six months to sell securities if they breach any fund screening criteria. Typically they divest within a much shorter time frame than this - as soon as they have found a suitable alternative which is typically weeks, not months. In some circumstances where they are uncertain about the eligibility of a company for the funds, the team consults its independent external advisory committee to clarify our understanding of the ESG issues facing the company, before investing in the security. Therefore, reducing the possibility of owning a security that should have been excluded. 

 


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