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Local Pensions Partnership

PRI reporting framework 2020

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

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.

LPPI provides investment management services to public sector pension funds. Our clients are administering bodies with a fiduciary duty to make investments where they will earn the best long-term risk adjusted returns for beneficiaries.

Our assessment of investment risks and opportunities on behalf of client funds involves informed judgements about the quality of company fundamentals and about the operating and wider policy and social context during our period of prospective ownership. We are long term investors and integrating ESG considerations provides a frame of reference for our continual assessment and review process. We believe that companies which understand and manage their governance, social and environmental risks effectively deliver better long-term returns and suffer reduced short-term volatility. In assessing risks and opportunities we are searching for quality and sustainability, characteristics which require a detailed evaluation of the interplay of a range of factors and a forward looking assessment of value drivers.

Our equity portfolio is 100% actively managed, we routinely integrate ESG in our stock selection process, as well as within our engagement with investee companies.

For the part of the portfolio managed internally, processes are conducted by our investment staff and informed by third party proprietary ESG data (the equity team supported by the RI team). For external mandates, our Investment Management Agreements require ESG considerations to be integrated into investment decision-making by all managers we select to work with us.

We favour an open investment universe within which managers can identify and invest in quality companies but recognise the investment risks faced from climate change and have adopted an extraordinary restriction for our Global Equities Fund. We exclude all companies earning +50% of their revenues from the extraction of thermal coal. 

In 2019 we have adopted a Policy on Controverisal Weapons which explains how we will seek to avoid investment in companies engaging in defined activities.

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

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

02.2. Indicate whether you incentivise brokers to provide ESG research.

02.4. Additional information. [Optional]

LPPI uses ESG information from a range of sources to identify material issues and consider appropriate actions.  ESG information forms part of review process supporting initial stock selection, post investment monitoring and engagement planning. 

Information is mostly sourced from external providers of ESG data. This is complemented by analysis from other sources including data produced by organisations including CDP, Carbon Tracker and the Transition Pathway Initiative.

For stocks held by or under consideration for the internal mandate, the analysis of ESG information involves both our in-house equity team and our RI team 

 


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate whether your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

Company-specific and thematic information derived from engagements and collaborations are discussed at LPP's quarterly Stewardship Committee meetings. Members of the Committee receive a report on collaborations and partnerships underway and on voting activity for the prior quarter which ensures information derived from engagement and voting activity is being shared and insights and opportunities discussed.


(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

In 2018 LPPI introduced a restriction to the Global Equities Fund which prevents investment in companies predominantly involved in the production of thermal coal (as defined by the related GICS sub-industry).

Details of this restriction and of wider work on climate change are available from LPPI's Responsible Investment Policy and its accompanying Annex on Climate Change.

Screened by

          During 2019, LPPI has developed and formally adopted a Policy on Controversial Weapons.
        

Description

In September 2019 LPPI added an Annex on Controversial Weapons to its RI Policy.

Controversial weapons are those that have an indiscriminate and disproportional humanitarian impact on civilian populations; the effects of which can be felt long after military conflicts have ended.

The policy reflects LPPI’s commitment to avoid funding such activities by not investing in companies which are known producers of controversial weapons.

The new policy explains an approach to avoiding investments in companies that contravene internationally recognised norms and applicable treaties.

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

LPPI generally does not favour screening or the artificial restriction of the investment universe as a risk management approach.

Where new restrictions or changes to existing restrictions are proposed they are discussed with clients in advance.


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.

05.5. Additional information. [Optional]

We monitor our listed equity portfolio ESG score vs the benchmark each quarter.


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.

Thermal Coal

Breaches are unlikely given policy implementation depends (only) on the identification of stocks classified within a GICS sub-industry group.

No breaches have been identified to date. Should a breach happen, a conversation would be held with the relevant manager on how to best unwind the position and avoid similar breaches in the future.

Controversial Weapons

Our Policy applies to all asset classes and incorporates a list of excluded companies and a monitoring process. 

In public markets any identified breach would result in the holding being liquidated. In private markets and alternative asset classes, information on investee companies may be more limited than in public markets. In this case, LPPI will work closely with delegate managers to avoid any investment in excluded companies.If unintended investments are identified LPPI will seek divestment through active redemption or, if divestment would impose a material financial detriment, through natural maturity of the fund.

 

06.3. Additional information. [Optional]


(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]

A systematic review of Environmental, Social and Governance issues is routinely undertaken as part of the due diligence which precedes a final decision being made on whether to add a new stock to the internally managed portfolio. For externally managed funds, monitoring of ESG characteristics takes place quarterly.


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.

          Material risks identified as part ESG research are evaluated and presented within the papers which support and inform investment decision-making.
        

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

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

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

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis.

10.4. Describe the methods you have used to adjust the income forecast/valuation tool.

ESG information is routinely incorporated into LPPI's fundamental analysis and in this way it influences our view of the fair value of all stocks within the internally managed portfolio.

When we undertake analysis our research of all factors (including ESG) is focussed on helping us to form a view on current and future key value drivers, including:

  • the quantum of future cash flows;
  • the timing of these cash flows;
  • the appropriate discount rate.

LPPI evaluates material matters for individual companies case by case .  Any concerns we identify (for example around governance) will influence the discount rate we consider appropriate and directly impact our view of fair value.

 

10.6. Additional information. [OPTIONAL]


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