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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

LGS will not make investments in companies that derive any revenue from:

  • Controversial weapons;
  • Tobacco.

LGS will not make investments in companies that derive more than 10% of their revenues in the following areas of activity:

  • Armaments;
  • Gambling;
  • Old growth logging;
  • Uranium mining and nuclear power.

LGS will also not make investments in companies that derive more than 33% of their revenues from carbon intensive activities including:

  • Coal mining
  • Coal fired electricity generation; and
  • Oil tar sands.

LGS may also exclude companies with a high environmental, social or governance (ESG) risk profile and exhibiting poor management of these risks. Companies excluded under this screen may come from any industry sector.

Screened by

Description

LGS invests in positive thematics and has a mandate which specialises in this area.

Screened by

Description

LGS' negative screen for companies with high ESG risk is determined by MSCI ESG Research "ESG Impact Monitor" product. This assesses companies against 18 International Conventions and Norms.

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

The current set of LGS negative screens were established by the LGS Investment Committee in 2017, following multiple reviews of the original screens developed in 2001. The review of the screening criteria involved several facets, including:

  • The amount of the revenue threshold for excluded criteria;
  • Wording of the screens to ensure transparency and clarity;
  • Review of the appropriateness of the existing screens; and
  • Recommendation for any new screening criteria.

The review was undertaken with detailed paper(s) by internal LGS RI and investment staff using external ESG research and in dialogue with our existing managers along with ongoing review by the LGS Investment Committee. Factors that have been important in the review are:

  • The number of companies that are excluded under a screen and the cumulative market capitalisations of the excluded companies. Risk and tracking error considerations are paramount.
  • Reviewing ESG macro trends that might be creating new opportunities or altering valuations across industries
  • LGS' acceptance that climate change represents the largest ESG risk for our members' long-term returns.
  • The values of LGS members (as expressed by the current screens).
  • LGS commits to regularly communicate the RI strategy to our members via: commentary in the Annual Report, updates in the quarterly newsletters and making information available on the LGS website.
  • Our policy is publicy available and any changes are published to our website. 

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.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

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.

In the event that a breach occurs, the manager is:

  1. Notified about the breach
  2. Directed to exit the stock in question as soon as possible
  3. Questioned on how the breach came about to ensure that a process improvement can be implemented to prevent future breaches.
  4. Ensure that any loss to the fund due to adverse market movements/trading costs are reimbursed.

In the event there are continual breaches by the same manager, LGS may look to terminate their mandate.

06.3. Additional information. [Optional]


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