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Generation Investment Management LLP

PRI reporting framework 2020

You are in Strategy and Governance » Investment policy

Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

Generation's disciplined investment process fully integrates sustainability analysis in order to enhance our ability to deliver risk-adjusted returns over the long-term. We believe incorporating a broader spectrum of factors, including ESG issues, within our investment analysis allows us to determine the underlying drivers that influence the long-term performance of companies, and gives us the ability to construct concentrated portfolios with high conviction. ESG factors are therefore systematically and explicitly integrated at each stage of the investment process. We apply this approach to 100% of our AUM.

Given our strong conviction in the financial value (or "real economy impact"), of ESG integration, it follows that we believe it is our fiduciary duty to our clients to incorporate them. The Generation Foundation, Generation's advocacy arm, has collaborated with UNEP FI and the UN PRI on the topic of Fiduciary Duty. Please find further information here: https://www.genfound.org/library/.

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

We consider our investment philosophy and process to be our ESG policy as sustainability is fully integrated into our world-view and investment strategies. Generation Investment Management was founded with the mission of proving the business case for sustainable investing. The Firm’s founders shared the conviction that sustainability insight is a driver of long-term returns, and we have built an investment process that systematically reviews the material ESG factors that affect business and management performance. This integrated investment approach is consistent across the Firm’s strategies.

Furthermore, the integration of sustainability considerations into our investment process is carried out by each of our investment team members. Our team is a diverse group of investment professionals, drawn together by our Firm’s mission and belief that a wider research and analysis lens including ESG factors is the best way to identify attractive risk-adjusted investment opportunities. We view our team’s ability to integrate a sustainability lens into our investment process as a core competency.

01.6. Additional information [Optional].

          
        

SG 01 CC. Climate risk

01.6 CC. Indicate whether your organisation has identified transition and physical climate-related risks and opportunities and factored this into the investment strategies and products, within the organisation’s investment time horizon.

Describe the identified transition and physical climate-related risks and opportunities and how they have been factored into the investment strategies/products.

Our approach has always considered these factors (and others related to sustainability) as part of our core investment thinking and practice. Investing for the long term in high quality companies necessarily requires deep consideration of climate risk and opportunity.

The particular approach we take is tailored according to the company. Individual analysts track all important aspects, with support from our research team. In some cases we conduct deeper research with external partners. For instance, we recently assessed the carbon footprint of different retail models with academics in the US because we could not find a relevant tool.

On the opportunity side of the equation, we look at electrification of mobility and the shift to sustainable diets and food systems, among many others. Meanwhile, the biggest risks to the companies we cover typically lie in the supply chain. For instance, the vast majority of GHG emissions associated with our portfolio are Scope 3.

We are currently conducting an assessment across one of our portfolios with an external partner. This modelling work looks at transition risks and opportunities initially and we plan to look at physical risk in future steps (based on our existing analysis, the impact of extreme weather events on the supply chain and on water security will be important here). This is exploratory work, but we hope to incorporate learnings from this process back into our investment process.

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

Describe the associated timescales linked to these risks and opportunities.

We consider a range of timescales. Climate risk is with us today of course. In our investment work we are looking out in particular to the next 5 to 15 years. It is in this period where we expect many of the risks and opportunities related to transition to play out, although it won’t be the end of the story. We also look well beyond this, given the need to achieve net zero by 2050 at the latest (which in turn relates to the temperature goal for 2100).

01.8 CC. Indicate whether the organisation publicly supports the TCFD?

01.9 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

Generation Investment Management (“Generation” or the “Firm”) was founded with the mission of proving the business case for sustainable investing. The Firm’s founders shared the conviction that sustainability insight is a driver of long-term returns, and we have built an investment process that systematically reviews the material ESG factors, including climate change, that affect business and management performance. This integrated investment approach is consistent across the Firm’s strategies. Generation identifies and manages material climate-related risks and opportunities via various initiatives including roadmap research, solutions summits, and the Sustainability Trends Report.  In addition, the Generation Foundation undertakes and supports research that helps to identify and manage material climate-related risks and opportunities.

1.10 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.

specify

          In 2019 we reported to our clients on the relative carbon intensity of the investments we manage on their behalf.
        

SG 02. Publicly available RI policy or guidance documents

 

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

URL/Attachment

02.3. Additional information [Optional].

As discussed earlier, our whole investment philosophy and mission is a commitment to responsible investment, and serve as a responsible investment policy. The firm was founded with the mission of proving the business case for sustainable investing, with our founders sharing the conviction that sustainability insight is a driver of long-term returns, and we have built an investment process that systematically reviews the material ESG factors that affect business and management performance. Further information on how ESG issues are integrated in our Global (public) equity strategy is disclosed on our website: https://www.generationim.com/strategy/global-equity.html

We also disclose selected highlights of our research to emphasise the business case for integrating ESG research into financial analysis and promote long-term thinking within the capital markets: https://www.generationim.com/research-centre/. Our updated response to the UK Stewardship Code can also be viewed on our website, which details our approach to engagement and our role as responsible long-term investors, as linked above: https://www.generationim.com/media/1495/generation-im-stewardship-code.pdf. We also provide our approach to Stewardship and our Engagement policy on our website https://www.generationim.com/media/1620/generation-im_stewardship-and-engagement-policy_dec-19.pdf.

Our proxy voting guidelines are made available to clients on request. Generation has developed a proxy voting policy which is used to determine a fair and consistent approach to voting company proxies. Generation’s investment analysts use, amongst other information, research material provided by the Institutional Shareholder Services Inc. (“ISS”), but reach voting decisions independent of ISS’s voting recommendations. Generation takes its responsibilities as shareholder very seriously and engages with companies via constructive dialogue as a means of enhancing and protecting our client’s investments. In addition, the analysis of corporate governance directly informs our assessment of the management quality of each company, a factor which Generation believes to be a key driver of strong long-term performance. Generation sees being an engaged shareholder as an integral part of responsible ownership. Generation has appointed ISS as its proxy voting agent to provide notice of all company meetings and to ensure Generation's voting instructions are effectively carried out. As part of this process, Generation provides regular portfolio holding updates to ISS and reconciles its records with those held by ISS to ensure the correct numbers of shares are identified for the ballots. Generation uses ISS as our independent voting service provider because of the depth of research it provides. However, Generation does not automatically adopt global proxy voting rules from any third-party service as a default setting. Generation believes each one of its analysts should review the relevant corporate governance issues on a case-by-case basis and exercise their best judgement given their knowledge of the company concerned. If Separate Accounts have specific voting policies that differ from Generation's and require Generation to vote their proxies, Generation will try to accommodate such policies. Generally, where a Separate Account does not authorize Generation to vote proxies, the Separate Account will receive proxy voting statements directly from their custodian. Where Generation receives “Class Action” documents on behalf of a Fund, Generation will consider such documents and consider whether the Fund should either participate in the Class Action or opt out of any Class Action notices received. Generation shall, however, be under no obligation to act as a “representative” in such an action. Generation will determine if it is in the best interest of the Fund to seek to recover monies from a Class Action. If Class Action documents are received by Generation for a Separate Account, Generation will gather any requisite documentation and information it has received and forward it to the Separate Account owner, or their custodian, to enable them to respond at their discretion.


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

We are committed to compliance with the highest standards of corporate governance and pay due regard to the interests of our clients in managing conflicts fairly, both between ourselves and our clients and between clients. Senior management recognises that conflicts of interest may arise, and we have established a clear policy to manage these conflicts.

We have identified the following principles of good practice 

• Full commitment of senior management to conflict identification and management;

• Business-wide approach encompassing all activities across the Firm;

• Consistent treatment of conflicts of interest;

• Provision of regular management information on the extent and mitigation of conflicts of interest to senior management; and

• Regular review of the types of mitigation.

We are committed to implementing and maintaining an effective conflicts of interest policy appropriate to our organisation and the nature, scale and complexity. As a general rule we will always disclose an actual or potential conflict of interest as a method of managing a conflict, unless doing so will breach a legal or regulatory guideline or would not be in the interests of clients.

Our Conflicts of Interest Policy is available to our clients upon request.

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within investee entities.

04.2. Describe your process on managing incidents

We seek to invest in high quality businesses run by high quality management teams that are identifying and managing potential risks appropriately.  Incidents are therefore rare at our portfolio companies. We hope that our process leads us away from companies where incidents are likely to occur. That being said if an incident were to occur, we are prepared to engage with management teams, sometimes more publicly if necessary in the case of our public strategies, and via board positions and other touch-points at our private investments.


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