If a company is not involved in any of the activities listed in our exclusion list an investment case can be justified, a credit application is prepared and the overall credit rating is determined by means of a quantitative as well as a qualitative (mainly ESG) analysis which together inform the overall credit rating.
The qualitative analysis is performed on all potential deals submitted to the Credit Committee across all the asset classes in the fixed income investment space. All existing exposures are reviewed annually and a qualitative analysis is also done as part of the review and presented to the Credit Committee.
Examples of the factors considered are:
Electricity and water usage,
Sustainable sourcing of materials,
Rehabilitation of the land,
Diversity of management team,
Role in society,
Use of local labour and materials,
Independence of board and chairman,
Company shares held by chairman,
Management integrity and compliance with regulatory standards/frameworks,
Share incentive schemes and how funded and whether linked to KPIs,
Management KPI’s include ESG,
These factors are weighted and scored out of 4. An overall score below 2.2 is a red flag. The Governance component must score above 2.2. Issuers that score below 2.2 and are weak on Governance are not recommended for investment. The yield or return on the investment does not override weak governance. The internal process followed when we identify concerns is:
- We engage directly with the management team to ensure robust processes and policies are in place to ensure that the Governance concerns are addressed. The direct engagement is a powerful mechanism to drive the correct and sustainable corporate behaviour.
- In instances where this engagement is not successful in bringing about change, the STANLIB Fixed Income team will engage with other STANLIB franchises and note our concern through our proxy voting.
- Non-participation in funding/auctions.