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SBI Funds Management Private Limited

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

SBIFMPL uses ESG based negative screening for all listed equities under our coverage. We score companies on an internal ESG based questionnaire as a process of Initiation in our universe. We have internally set thresholds to see if the companies score above por below the set benchmark. The companies scoring below the threshold are not invested in.

We also check the ESG scores of companies in our coverage on a monthly basis. We have hired services of one international and one domestic ESG ratings/service providers. Since international service providers use disclosure-based models to provide ratings, we have made a customised questionnaire with our domestic service provider in order to reach out to companies who do not publish ESG based information publicly. This serves a dual purpose of scoring them in a better manner and also encouraging them to publish this information on their periodic disclosures/website.

We also use a sector based negative screen in our SBI Magnum Equity ESG Fund along with ESG score-based screening. The idea is to first exclude sectors like Tobacco, Alcohol, Adult Entertainment, Controversial Weapons and Gambling from the list and overlay the ESG scores on top of this selection to construct the portfolio.

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

  • We send out emails to investee companies when we make changes in our ESG questionnaire and ask them for new data points
  • We also (if needed) meet the companies in person to inform them about our new criteria

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.

05.5. Additional information. [Optional]


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

06.2. If breaches of fund screening criteria are identified, describe the process followed to correct those breaches.

At SBIFMPL, we screen the investment universe for applied negative and positive screeners at the time of investing and at the end of every month to ensure the portfolio meets the specific criteria laid out.

The risk department acts as an independent internal audit. It screens the portfolio against the specific negative and positive criteria laid out and checks for breaches. Breaches can be at the time of initial investment or subsequent to the investment. At the time of investment, the breach is rectified within 30 days by selling the position. Post investment the cause of the breach is first analysed. The breach could have  occurred due to a change in the scoring criteria by the external agencies or an event occurring which has changed the score of the company. The process is to have an interaction with the investee company to understand the causes and any remedial action being taken as well as future mitigation strategies. Depending on the severity of the issues and the company response, portfolio action is determined.

All regulatory limits have zero tolerance and hence very stringent controls have been put in place to ensure compliance with the same. We have following two levels of control to check all limits pertaining to the investments made:

  1. Ex-ante control – Regulatory limits defined by SEBI and SID asset allocation limits are incorporated as hard limits in the front office system as a control to pre-empt the risk of a regulatory limit breach. There is a corresponding alert level defined for every regulatory hard limit. Some of the internal limits are also defined in the front office system as soft limits.
  2. Ex-post control – A second level control is exercised by the risk management team daily through the limit breach reports generated from the front office application.

Breaches, if any are flagged off as per the defined Breach escalation process laid down in the approved documented Risk Policy of the company.

 

06.3. Additional information. [Optional]


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