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Carnot Capital AG

PRI reporting framework 2020

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (A) Implementation: Screening

(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

Description

Exclusion lists (top down) & ESG screening (bottom up):
• Sustainable ESG rating at the company level or your SRI MSCI report at the fund level
• Active selection for the area E = Environment
• S = Social and G = Governance partially active
The application of the ESG sustainability analysis is implemented in the investment process.

Screened by

Description

Exclusion lists (top down) & ESG screening (bottom up):
• Sustainable ESG rating at the company level or your SRI MSCI report at the fund level
• Active selection for the area E = Environment
• S = Social and G = Governance partially active
The application of the ESG sustainability analysis is implemented in the investment process.

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

Carnot reports with its annually Impact report to its clients/beneficiaries and to the public:

Carnot Impact Investing is a blended approach, which differentiates itself through the combination of financial as well as social and environmental performance. The positive effects (impact) are created in six steps:

1. Topic of energy efficiency

2. Controversial activities (ESG top-down analysis)

3. Financial analysis

4. Sustainability (ESG bottom-up analysis)

5. Impact validation

6. Engagement

In the appendix, the report is supplemented by examples, external reports on sustainability and the carbon footprint as well as information on Carnot Capital memberships and publications.


1. Topic of Energy Efficiency

The Carnot Efficient Energy Fund invests exclusively in companies with products, services and development projects that reduce energy consumption. The reduction of energy consumption must be part of a company’s strategy. Such companies can be found in the building technology, industry and transport sectors. Some portfolio companies also generate revenue from renewable energy products, which is shown separately in the following overview:

Fields of Activity of the Portfolio Companies (Measured by position sizes) as of 31/12/2019:
BUILDING TECHNOLOGY (36.7 %): ✓Heating ✓Cooling, ventilation ✓Windows, doors ✓Elevators ✓Smart buildings ✓Lighting✓ Planning INDUSTRIALS (28.6 %): ✓Energy supply ✓Automation ✓Internet of things ✓Energy storage ✓Fluid control ✓Engineering
TRANSPORT (26.9 %): ✓Lightweight construction ✓Down sizing ✓E-mobility ✓Batteries ✓Rail transport ✓Sea freight
RENEWABLE ENERGY (7.6 %): ✓Hydro power ✓Wind energy ✓Waste to energy ✓Energy from biomass

2. Controversial Activities

Potential portfolio companies are examined for controversial activities and excluded if necessary due to their negative impact (negative screening). For certain activities, a low turnover tolerance threshold is applied.

3. Financial Analysis

In our opinion, sustainability and the impact are only guaranteed if the company has a solid financial basis. We expect a) a strong balance sheet, b) an economic benefit of the products for the buyers, c) a good return on capital employed (ROCE). A high ROCE promotes growth and innovation, which in turn reinforces the positive impact.

4. Sustainability Analysis

In the sustainability analysis of portfolio candidates, we investigate the strategic significance of sustainability and assess a) environmental (products, production, supply chain), b) social (suppliers, employees, employer, customers) and c) corporate governance issues.

5. Impact Validation

a) Addressed Sustainable Development Goals (SDGs)

The portfolio companies make it possible to reduce energy consumption and thus make a decisive contribution to the United Nations Sustainable Development Goals (SDGs). The main goals addressed are “Affordable and Clean Energy” (# 7) as well as “Climate Action” (#13). Furthermore, the portfolio companies contribute to modern infrastructures and cleaner industries (# 9), make transport systems more sustainable (# 11) and support the decoupling of economic growth and environmental degradation (# 8). Some portfolio companies have additional effects in terms of further development goals. In our impact measurement, we consider the share of revenues of the relevant products as well as their effectiveness. We map the results according to companies and development goals in an impact heatmap.

b) Portfolio Share of Impact Companies

The strict focus on energy efficiency means that all positions have a positive environmental impact (excluding cash portion).

c) Share of Revenues of Companies with Impact Products

In our impact analysis, we determine which part of a company’s revenue has a positive impact. On average, the portfolio companies generate more than half of the turnover with products, services and projects with a positive impact. A fund investment of CHF 1 million accounts for approximately CHF 0.5 million of revenues with a positive environmental impact. Part of this revenue has a social impact at the same time, as outlined (SDGs 9.4 und 11.2).

d) Research & Development of Impact Products

A significant positive impact results from the research and development expenses of the portfolio companies. Measured by the turnover of the companies, the expenditure amounts to more than 5 %. On a fund investment of CHF 1 million, several tens of thousands of francs of development expenditure are spent to improve energy efficiency.

6. Engagement

If the Carnot Impact Analysis reveals questions (e.g. on corporate governance) or suggestions for improvement (e.g. on the impact reporting of the company), Carnot uses its contacts to the management level and address these commitment issues personally (Opened engagement initiatives 8, Closed cases 5, Pending cases 7).


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.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

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

05.5. Additional information. [Optional]


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


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