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Neumeier Poma Investment Counsel, LLC

PRI reporting framework 2020

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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 200%

01.2. Describe your organisation’s approach to ESG incorporation and the reasons for choosing the particular strategy/strategies.

Neumeier Poma Investment Counsel's (NPIC) analysts and portfolio managers use a fundamental "bottoms-up" approach, which includes ESG analysis (incorporation), to identify stock investments with an opportunity to have a greater than 40% upside (20% downside).  Our objective is to maximize upside and control downside.  

We screen and exclude certain industries in our stock selection process, including, but not limited to: manufacture of guns; predatory lending; animal testing; companies whose products or services cause serious environmental degradation; companies whose products and services have a heavy fossil fuel/CO2 "footprint".  We exclude these investments because of their negative impact on the community overall.  We know we can avoid investing in these areas and still find other investments where we can make good returns.

We are small-cap value investors and we use a combination of strategies to find good investments. 

 

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

As small-cap value equity investors we look for investments in companies with a market cap size between $250 million and $3 billion, putting the universe of possible candidates at approximately 2,000 companies.  The criteria we use to identify a good business includes finding profitable firms with high margins, low stock valuations, low debt, strong cash flow, proprietary competitive advantages, etc.  We consider the current economic environment as well as the long term.   When looking for possible investments we incorporate ESG screening to exclude industries such as dirty energy and guns as well as avoid companies which may screen negative on other ESG issues. After screening out stocks we do not want to invest in we still need to use other ESG factors and multi-level tests to identify good businesses for investments.  We are small-cap value investors and we use a combination of strategies to find good investments.

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]

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]

We are a small firm with 8 employees.  Three portfolio managers vote proxies and therefore know firsthand about the proxy votes when making investment decisions.  Stock selection is ultimately decided by the two portfolio managers who are also the company owners and they are aware of the proxy votes and any engagement information on an organization we are researching for a possible investment. 

(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

Our objective is to maximize upside and control downside.  Neumeier Poma Investment Counsel excludes certain industries in its stock selection process, including, but not limited to: manufacture of guns; predatory lending; animal testing; companies whose products or services cause serious environmental degradation; companies whose products and services have a heavy fossil fuel/CO2 "footprint". 

Screened by

Description

We look for companies that are market leaders (#1 or #2 in sub sector) and this criteria includes, among others, ESG factors when valuing the business and future performance. We look for companies that have a proprietary product or patent that gives them an advantage over the competition.

 

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

We are small-cap value equity investors and we don't deviate from this strategy.  Annually we review our investment objectives.  Institutional clients are given a monthly performance report and quarterly letter.

Our bottoms-up stock picking investment strategy includes a qualitative and fundamental approach for finding companies that meet our value criteria.  ESG factors and climate related risks and opportunities are included in our stock picking analysis but it is not the only criteria used. Our valuation and financial strength criteria typically eliminates 75% of the names from our possible universe of investments.  Along with our multi-level testing to find good stock investments we avoid investments in fossil fuels, firearms, private prisons, and unethical labor or lending practices.

Our ESG screening and climate change criteria is based on both science data and our personal attitude and ethical standards towards the environment.  For example, we find that we can avoid investing in areas like fossil fuels and still find good investments for our clients that don't have a negative impact on the environment.  

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.

05.5. Additional information. [Optional]

One screen we use is to screen out investments in industries and products that we feel have a negative effect on the environment and community. Some areas we avoid investing include but are not limited to fossil fuels, firearms, unethical labor or lending practices.

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. 

          We are a small company with 8 full time employees. Two of the three portfolio managers  are owners and they make the final investment decisions.

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

We are a small company with 8 full time employees.  Final investment decisions are made by the two portfolio managers who are the owners. If a screening criteria was breached or if information became available that changed the original investment thesis for an organization, the owners would evaluate this new information and decide if changes are needed to the investment.

The investment portfolio is checked daily by three portfolio managers for any irregularities. 

06.3. Additional information. [Optional]

(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates (Not Applicable)

(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]

Environmental: screen to exclude investing in services and products with a heavy fossil fuel / co2 footprint. Bloomberg law documents for outstanding ESG lawsuits and complaints.

Social: 10K and corporate filings: analyze relationship with suppliers, customers and community. Review if any outstanding lawsuits and the nature of the dispute.

Governance: 10k and corporate filings to analyze executive salaries and stock holdings, gender data for executive positions, etc.

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.

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

09.5. Describe how ESG information is held and used by your portfolio managers.

09.6. Additional information. [Optional]

We are small-cap value investors.  Stocks are selected for investment after meeting our rigorous criteria:  Compelling high quality companies; Stock trades at a discount; Identifiable growth catalysts; Screens positive environmental, social governance factors; Avoid investments including but not limited to fossil fuels, firearms, private prisons, animal testing, and unethical labor or lending practices.   Our valuation and financial criteria eliminates about 75% of the names in our small-cap universe.  Our research team's experience and knowledge eliminate additional names along with the ESG screening and analysis. 

Generally ESG review is a smaller part of our overall company analysis but it can vary depending on the company being analyzed and the industry it is involved in.  Climate change related risks and opportunities are analyzed.  We review company reports on corporate social responsibility and reports addressing energy efficiency and waste within the organization and supply and manufacturing chain. 

 

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

Proportion of actively managed listed equity exposed to investment analysis

10.3. Describe how you integrate ESG information into portfolio weighting.

ESG information is included in our small-cap value fundamental investment analysis.  Our portfolio is constructed of investments we find with the best overall value.

Our objective is to maximize upside and control downside.  While we exclude, through screening, certain industries in our stock selection process, we also may underweight or overweight certain sectors based on ESG risk. For example we may underweight fossil fuels because we find investing our money elsewhere gives us better returns. 

We look to see how organizations report on how they are addressing climate change risks within their business and the indicators we can follow to see their progress.

Research meetings are held weekly to discuss ideas and areas of investment.  In general we buy and hold stocks for long term. Economic factors like climate change or changes in government policies are taken into account when picking stocks. 

10.6. Additional information. [OPTIONAL]

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