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Blue Oceans Capital

PRI reporting framework 2020

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

ESG incorporation in actively managed listed equities

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.

Ininitial screening involves filtering out any company that is involved in:

- Polluting commodities (such as oil, coal, copper or gold)
- Weapons or defence
- Gambling
- Alcohol
- Any media harmful to psychological well-being

 

If a company passes this filter we then examine: 

- External ESG factors 

- How the company has demonstrated its awareness of ESG factors

- Where management has demonstrated its awareness of ESG factors

- How management has demonstrated is knowledge of ESG risks

- Strategy alignment with ESG opportunities 

- Evidence of reporting highlighting future ESG risks and if strategy allows for anticipated risks

- Linking of ESG factors to financial performance 

- Extent that management involves customers, employees, governement and other stakeholders in ESG issues

- How responsive the company is to investor engagement

- Board support of ESG issues 

- Drivers of revenue for price and volume and do they align with sustainabile ESG factors, future prospects for these factors

- Risks in future ESG factors

- ESG trends and their impact on core markets

- Anticipated legislative or regulatory changes 

- Sustainability of company's key markets in terms of resource use and disposal, consumer preferences and social trends

- Scacity of raw materials

- Energy intensity of operations

- Motivation of employees

- Risks that input costs will rise and is the company aware of this

- Costs projects of input costs 

- Gross income as a portion of revenue

- Product development strategy and % of new sales from new products

- Pending patent applications

- Incentive structures

- Extent of stakeholder research

- Efforts to mitigate ESG risks in regards to costs 

- Capacity to sustain or improve operating efficiency 

- Growth rate of shares outstanding 

- Percentage of total assets that are intangible assets 

- Environmental provisions and levels vs historical costs 

- Notes to balance sheet recognising environmental risks to physical assets 

- Notes to balance sheet in recognition to ESG risks to reputation

- Strength of brand

- Strength of customer satisfaction and loyalty

- Pricing power

- Level of autonomy of employyes

- if there are flat or hierarchical structures

- Recruitment proceedure for obtaining talented graduates

- Structure and diversity of non-executive board

- How dynamic and committed executive management is

- If pension assets are being managed by ESG aware practitioners

- If liabilities are short or long-term

- The efficiency of working capital 

- Reliability of relationships with suppliers and customers

- Extent of off-balance sheet commitments 

- If there is excessive leverage eroding stakeholder trust and raising cost of equity

- If debt covenants specify any aspects of ESG risk management

- If operating expenses are being reduced by investment in resource-efficient technology

- If capital expenditure is covering asset depreciation

- Capital expenditure and if it is reducing the need for capex in the future pointing to improvements in free cash flows

- Any due dilligence on acquisition targets needs to cover long-term ESG risks

- Debt facilities in relation to costs that could be lowered if management improves it ESG risks 

- Any ammendment that needs to be made to our valuation in light of ESG risks impacting future cash flows

 

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


LEI 02. Type of ESG information used in investment decision (Not Completed)


LEI 03. Information from engagement and/or voting used in investment decision-making (Not Completed)


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

          Manual consideration of business models followed by detailed analysis proceedure made with reference to PRI practical guide to ESG integration for equity investing
        

Description

We manually look at each business model to consider its high level ESG impact. (We do not invest in polluting commodities, weapons or defense, gambling, alcohol, harmful media). If a company passes that manual screening we than conduct detailed ESG research as per our ESG analysis proceedure as shown on our website https://blueoceans.com.au/wp-content/uploads/2019/06/03606-blueo-priguidelines_a4-web-20190613.pdf

 

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

By updating our investment process and sustainability analysis document on our website. 


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure ESG screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

We may review more frequently than annually if ESG issues arise. If an issue arises we will review that company completely, update our ESG report and post to our website. If an issue is material we will divest and notify our investors. We review news and updates on companies we hold weekly. 


LEI 06. Processes to ensure fund criteria are not breached (Private)


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

A company must not harm people or the environment and we preference companies that go further and actually contribute to climate change abatement or social improvement. 


(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]


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.

09.4. 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]


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


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