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Kagiso Asset Management

PRI reporting framework 2020

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
100 %
Total actively managed listed equities 100%

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

We believe that superior investment returns can be achieved by following a proven and effective investment process. We follow a bottom up process to harness our investment philosophy in a disciplined, yet flexible manner.

We make investment decisions based on mispricings we observe in the market. Simply put, we buy investments that are priced below our considered assessment of intrinsic value and avoid those that we believe are overpriced.

All investments represent a set of future cash flows, which can generally be valued with reasonable accuracy. Over time, this intrinsic value progresses at a fairly stable pace. Asset prices, however, fluctuate considerably through time. This is largely due to self-reinforcing cycles of investor enthusiasm or negativity, often fuelled by an excessive focus on near-term data and news flow.

Our aim is to identify and exploit mispricings in the markets. We therefore buy investments at prices well below our estimation of their intrinsic value and hold them while they deliver strong cash returns and until they can be sold above this value. Once sold, we avoid such overvalued investments for as long as the market price is above our estimate of its intrinsic value.

Our fundamental research is valuation-based, we take a medium to long term view on the companies we own and we adapt to prevailing market conditions. The focus of our fundamental research is redirected as conditions change and, therefore, is applicable in most market environments.

We recognise that there is considerable danger in operating with the comfort of a false sense of certainty and the accompanying behavioural reinforcement cycles that lead to a distorted evaluation of new information. As a result, we understand that despite our best efforts we cannot possibly know all the facts.

This drives us to think more deeply, to work harder and to be more alert. We view the future in terms of probabilities, we explore alternative scenarios, diversify our positions, hedge risk and seek out potential asymmetries.

ESG considerations are an important part of our overall investment process. ESG integration into the investment process includes quantitative analysis of material ESG factors and inclusion of those in the valuation process. Incorporating ESG is a dynamic process that often requires a different approach for each company. We therefore spend a lot of time understanding the specific ESG issues a company faces and how we can best incorporate it into our investment thesis.

Once we own a company we become active owners by voting responsibly and engaging with companies on material ESG risk factors that impact valuation where we can have the most impact for our clients.

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

Our Islamic funds are managed in accordance with Sharia investment guidelines that have been established by the leading global Islamic institutions. This compliance means that companies that do not comply with Sharia law are removed as investment options and the remaining stocks are evaluated according to a series of financial ratio filters.

Our funds are mindful of the avoidance of interest or Riba. Riba is defined as a loan with the condition that the borrower will return to the lender more than and/or better than the quantity borrowed. Our funds are managed by a portfolio manager with extensive investment experience and they are supported by a highly respected Sharia Advisory and Supervisory Board.

This is applicable to 5% of our AUM.


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)


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

We have sector specific ESG scorecards and as such metrics for E and S differ as certain sectors would have different Environmental and Social intensities. Our scorecards are populated from reported data by companies and as such promote disclosure and performance monotoring on those metrics. We believe this is a superior method to modify behaviour and better disclosure practices on ESG issues.

Our Governance scorecard is universal across all sectors as corporate governance best practice is promoted across all sectors.

Our scorecards are updated annually as companies report and a detailed ESG report on the results of the scorecard and investee company performance over time and against peers are compiled by the covering analyst and updated, no investment recommendation is made without considering ESG issues.


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 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]

We have an automated proxy voting process with all details easily accessible to the entire investment team and this is quite useful for comparisons over time and to monitor effectiveness on engagment with companies on various issues related to proxy voting. We will be working to put our ESG voting record on our website over the next year and make it available to the public and current and potential clients.

Our ESG analytical tool is available to all relevant staff and all record are kept on our database.

We also developed an analytical tool to compare executive remuneration across companies and across sectors with a sell side broker using our brokerage on a bespoke basis.


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


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