Screening systematically excludes issuers from the investment process from the beginning, i.e. prior to constructing portfolios, if they engage in business activities that are deemed controversial.
The integration approach incorporates ESG data and criteria into the traditional financial analysis during portfolio construction.
Engagement refers to controlling the assets we hold on behalf of our clients, and representing the interests of our clients to companies. As it requires the ownership of assets, engagement activities take place "post-investment-process", i.e. after constructing portfolios.
Selected thematic considerations occur within several steps of the incorporation process, e.g. the 'low carbon transition' or '2 degree target' goal is addressed by avoiding the top 1% greenhouse gas issuers (Screening), decreasing the portfolio's ecological footprint (Integration) and engaging with portfolio companies to reduce their carbon footprint (Engagement). Depending on clients' needs, themed funds, addressing goals such as Christian values, shariah compliant investments or environmentally themed funds, are implemented.
As they occur in different stages of the investment process, the above ESG incorporation strategies can be combined as needed. Which combinations we choose will always depend on the individual mandate structure of the investor.
A description of each of these building blocks is provided in the following:
Thematic - Above and beyond legal and regulatory requirements we consider in particular the following codes as authoritative.
- United Nations Principles for Responsible Investment (UN PRI). In signing the UN PRI in 2012, we committed to intensifying the incorporation of sustainability issues into investment analysis and decision-making processes. This includes assuming responsibility for the environment, society and corporate governance.
- BVI Rules of Conduct. The Rules of Conduct published by the BVI German Investment Funds Association set a standard for good and responsible conduct with investors' capital and investors' rights. Furthermore, BVI members made their aim to assume social responsibility in ESG issues.
- UN Global Compact
- EFAMA Code for External Governance
- Montreal Carbon Pledge
- Global Investor Statement on Climate Change
- Oslo Convention on Cluster Munitions, prohibiting cluster bombs, as well as the Anti-Personel Mine Ban Convention.
Screening - Screening means filtering controversial business practices from the investment universe. Quoniam has developed a proprietary screening system and defined criteria that have resulted in a list of companies and issuers to exclude. In practice, this means that issuers are systematically excluded from the investment process from the beginning if they engage in business activities that are deemed controversial as regards weapons, human rights, labour rights, the environment, governance or tobacco production. Detailed screening criteria used are presented in the following.
- Norges Bank exclusion list (Norwegian government pension fund exclusion list)
- Production of cluster munitions and anti-personnel landmines
- Production of key biological and chemical weapons components
- Production of biological and chemical weapons, including weapons that use pathogens, toxins, or chemical substances that have toxic properties to kill, injure, or incapacitate
- Production of incendiary weapons using white phosphorus
- More than 1% of revenues derived from production of nuclear weapons
- Violation of labour standards (ILO)
- Violation of human rights
- Environmental destruction and pollution scandals
- Top 1% greenhouse gas issuers
- More than 1% of revenues derived from manufacture of tobacco
- Additional mandate specific negative or positive screening criteria/lists (clients may choose to select other / additional screening criteria if they have additional needs (e.g. norms based criteria). They may also choose to use negative lists provided by external service providers they have selected independently; we are open to discuss such additional screenings, as already employed in the context of existing mandates)
In addition to these exclusionary screening criteria, we also conduct in-house research on special situations and ESG Events. Those might in some cases result in exclusion of, re-inclusion of or trading restrictions on specific companies (see LEI 13.1).
Integration - Quoniam's holistic integration approach serves to reflect that ESG is an integral part of the investment process, with ESG data and criteria being incorporated into the traditional financial analysis during portfolio construction. ESG integration results in a portfolio with a better sustainability profile, optimised in terms of ESG scores, ecological footprint and the UN's Sustainable Development Goals.
- ESG scores: ESG scores are widely used in the context of ESG ratings. They allow us to cover a broad spectrum of sustainability metrics when picking securities for our funds.
- Ecological footprints: A prominent example of an ecological footprint is the carbon footprint (carbon intensity) of companies. In pursuit of the internationally accepted 'two-degree target' and the decarbonisation of our economic system in the medium to long term, emissions are of particular - and growing - relevance. To calculate the carbon intensity of an investment portfolio, we look at the carbon emission of a company in comparison with their revenue. The weighted metrics for each portfolio company then yields the portfolio's carbon footprint. With this calculation methodology, it is possible to look at the carbon footprint of a portfolio without it being distorted by the portfolio's absolute value, or the value of the capital invested. Other examples of ecological footprints include waste and water footprints. Calculation and aggregation of these intensity metrics are similar to the approach used for carbon intensity.
- UN Sustainable Development Goals (SDGs): The UN has defined 17 Sustainable Development Goals, also known as the Global Goals. Amongst these are an end to poverty and hunger, and the ensurance of affordable and clean energy by 2030. More and more companies report on how they contribute to these SDGs.
Engagement - Engagement refers to controlling the assets we hold on behalf of our clients, and representing the interests of our clients to companies. Engagement is covered within FI 14-16.