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Ninety One

PRI reporting framework 2020

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You are in Direct - Listed Equity Incorporation » Outputs and outcomes

Outputs and outcomes

LEI 12. How ESG incorporation has influenced portfolio composition

12.1. Indicate how your ESG incorporation strategies have influenced the composition of your portfolio(s) or investment universe.

Describe any reduction in your starting investment universe or other effects.

It is difficult to specify the percentage reduction of the starting universe as we apply this differently across our equity assets.

Company-wide exclusions

We have a firm-wide controversial weapons exclusion policy, which excludes companies involved in the manufacture and production of anti-personnel landmines, cluster munitions and biological and chemical weapons. As at the end of December 2019, this list comprised of 19 companies.

Strategy level exclusions

Our dedicated sustainability funds impose specific screening criteria. Our Global Environment Fund excludes companies which have revenues that would be significantly eroded by the carbon transition are excluded.

Our UK Sustainable Equity Fund excludes the following sectors: Alcohol, gambling, tobacco, controversial weapons, adult entertainment and heavy extractive industries.

Client mandate exclusions

We have a number of clients that have their own screening guidelines and exclusion lists. These guidelines vary from client to client and hence have varying effects on the reduction of their starting universe. 

Specify the percentage reduction (+/- 5%)

%

Describe any alteration to your investment universe or other effects.

Global Environment universe

The Fund invests in quality environmental solutions companies to capture the opportunity of the transition to a lower-carbon economy.

Initially, we identify those companies that are driving this 'unprecedented shift in energy systems and transport’. It is important to think not just about the direct beneficiaries of decarbonisation, but the entire related supply chain that needs to be built up. The companies which will benefit from the transition to a low carbon economy will likely sit within the industrials, utilities, energy, technology, materials, chemicals and automotive sectors, which represent almost 60% of the GICS. 

Select which of these effects followed your ESG integration.

          The integration of ESG factors helps us to fully understand the associated material risks and opportunities and inform our engagement and voting activity.
        

12.2. Additional information.[Optional]


LEI 13. Examples of ESG issues that affected your investment view / performance

13.1. Provide examples of ESG factors that affected your investment view and/or performance during the reporting year.

ESG factor and explanation

We believe that this particular company is making significant improvements in its management of ESG issues.  The company has made ESG an increasing priority and have made progress across E, S and G issues. In 2019, they published their inaugural sustainability report and welcomed investor feedback. ISS ESG ratings have improved from CCC in 2015 to B. Since 2013, the company has significantly improved on their lost time from injury and number of fatalities through training, investment and tone-from-the-top. They have made progress on reducing their environmental impact but some of their mines remain highly pollutive and the company has committed significant capex to reducing their emissions by 2030.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

Overall, the positive progress being made on the ESG front was a key contributor to our buy of the stock.

ESG factor and explanation

The company has gone through SOE reforms on the management, with employee and distributor share incentive schemes that lead to improved corporate governance. Since then the company has demonstrated meaningful volume growth and improvement in product mix. It has adjusted its distribution network and managed to push through higher pricing which benefited margins and returns. 

ESG incorporation strategy applied Integration

Impact on investment decision or performance

We bought the stock.

ESG factor and explanation

Last year the company unexpectantly decided not to pay a dividend stating the intension to reserve cash for investments into smart factory upgrades and appliances. This was despite of better than expected earnings and cashflows. The analyst decided this was a sign of ignorance to minority shareholders' interest and raised serious questions about the company's capital expenditure discipline, especially after previous attempts to invest in smartphones and the new energy vehicle market.  With an expensive valuation vs history and yield going to zero, the investment case was deemed less compelling.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

We sold the stock.

ESG factor and explanation

The company is the market leader in owning renewable generating and battery storage capacity in the US. They have consistently generated market-leading returns with return on equity around 2% above the sector average. We believe the company’s market-leading position in developing wind and solar generating capacity in the US gives it several competitive advantages, including access to the best sites (in particular for wind the difference in wind resource can be very significant depending on the location), more competitive turbine pricing and better financing terms.

In relation to impact, the company is the world’s largest operator of wind energy with the largest market share of North American wind capacity. The company operates more than 14GW of wind energy and 3GW of solar across 21 US states and four Canadian provinces. The company is also the US leader in energy storage capacity. With it’s diversified clean power base, it generates power 55% cleaner than the US grid.

ESG incorporation strategy applied Thematic

Impact on investment decision or performance

We held the stock as we expect the company to benefit from the structural growth opportunity offered through significant growth in utility-scale solar and wind capacity in the US.

13.2. Additional information.[Optional]


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