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Aeon Investment Management (Pty) Ltd

PRI reporting framework 2020

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

ESG incorporation in actively managed listed equities

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.

Aeon Investment Management believes that an analysis of ESG factors, in combination with fundamental research, delivers insight that enhances investment decisions and returns. 

Our approach to responsible investment is through Environmental, Social & Governance integration. The objective of ESG integration is to protect and enhance the value of our long-term investments. Central to our investment philosophy is the explicit recognition that sustainability factors directly affect long-term business profitability. By incorporating ESG factors, we have greater conviction in valuation and risk-reward assessment, and we are better able to identify security mispricing.

All our Analysts and Portfolio Managers keep track of corporate governance issues of companies listed on the Johannesburg Stock Exchange (JSE). The Analysts and Portfolio Managers report to Asief Mohamed, Chief Investment Officer, who is actively involved in environmental, social and governance engagement. We aim to consider a broad range of ESG issues. The environmental issues we consider include but are not limited to climate risk and change, water scarcity, pollution, packaging, and sourcing of raw materials. The Social issues we consider include but are not limited to diversity, workplace health and safety, product standards, community relationships and staff turnover metrics.

The Governance issues we consider include disclosure, director independence, qualification and experience, remuneration benchmarking, board tenure and attendance. Our Analysts also research integrated reports of companies in our coverage and we consider economic, social and governance issues in our valuation methodologies.

Aeon Investment Management does not largely conduct negative screening when assessing companies. 

 

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

Negative screening is hardly utilised in our philosophy. ESG themes are taken into account for stock selection.


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.

02.3. Describe how you incentivise brokers.

Aeon Investment Management allocates brokerage to sell-side brokers who provide us research relating to ESG issues.

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]

All our Analysts and Portfolio Managers keep track of corporate governance issues of companies listed on the Johannesburg Stock Exchange (JSE). The Analysts and Portfolio Managers report to Asief Mohamed, Chief Investment Officer, who is actively involved in environmental, social and governance engagement. We aim to consider a broad range of ESG issues. The environmental issues we consider include but are not limited to climate risk and change, water scarcity, pollution, packaging, and sourcing of raw materials. The Social issues we consider include but are not limited to diversity, workplace health and safety, product standards, community relationships and staff turnover metrics. The Governance issues we consider include disclosure, director independence, qualification and experience, remuneration benchmarking, board tenure and attendance. Our Analysts also research integrated reports of companies in our coverage and we consider economic, social and governance issues in our valuation methodologies.

Our Engagement and proxy voting process is available online in our Governance Policy (https://www.aeonim.co.za/governance-policy/). In addition, Aeon Investment Management confirms on a sample basis that the proxy votes do in fact get voted on behalf of our clients.


(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

Aeon Investment Management takes a broad approach to the screening of internally managed active listed equities; we do not conduct any negative screening. A number of ESG factors, as relevant to these holdings, are analysed; current and potential ESG risks are also considered when conducting an initial and ongoing analysis.

Lack of trust in the board of directors is a fundamental driver of the exclusion of companies. This, however, is a judgemental assessment as opposed to a quantitative scoring assessment.

Negative screening applied as the sole method of ESG integration is not effective. Relevant and continuous engagement with company management teams on their ESG risks allows investors to have a better understanding of companies, raises awareness of risks that company management teams had not considered and allows for a more holistic approach to ESG integration in investment philosophies.

Screened by

Description

Each and every investment has its "hurdle rate" or required rate of return adjusted either positively or negatively for ESG factors. Our general knowledge of these principles and conventions alert us to ESG factors that may impact a specific company. Bloomberg data is also used to determine disclosure ratings.

Screened by

Description

Each and every investment has its "hurdle rate" or required rate of return adjusted either positively or negatively for ESG factors. Our general knowledge of these principles and conventions alert us to ESG factors that may impact a specific company. The criteria for each company is reviewed at least once a year or on an ad hoc basis.

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

Notifications to clients are communicated (e.g. via email and regular client report-backs) as and when the changes to the screening methodology are made.

 


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]


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.

          An internal review is undertaken by the investment team to ensure that ESG is correctly integrated and the fund criteria is subsequently not breached.
        

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

In theory, in terms of our process, we should not find a company in our portfolio that has breached ESG norms. In the unlikely event that an ESG norm has been breached, we would investigate the breach, assesses the impact of the breach and its materiality. We would then apply the necessary remedial and risk-response plan and continually monitor the fund screening.

06.3. Additional information. [Optional]


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

We do not have ESG specific funds as all our funds comply with appropriate ESG standards and norms. Our Environmental Policy, Governance Policy and Social Policy are available online (https://www.aeonim.co.za/esg-policies/)


(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]

In 2019, we undertook extensive research on tools that we could utilise to incorporate quantitative environmental analysis on South African listed equities. We utilised several quantitative tools such as The Paris Agreement Capital Transition Assessment (“PACTA”) tool, The Transition Pathway Initiative (“TPI”), 2 Degrees Scenario Analysis etc. It should be noted that these PRI-recommended tools do however have limitations. Aeon Investment Management is mainly invested in South African stocks. The recommended tools do not cover a significant number of companies operating in developing markets e.g. South African-based companies and thus we are only able to obtain a limited amount of information on the analysis of these companies. Companies also only disclose a limited amount of environmental metrics to the public thus further increasing the limitations to the analysis. Aeon Investment Management has raised these issues with the research providers.

South Africa's case study for ESG is fairly unique due to its Apartheid history which has resulted in significant socio-economic inequality. We recognise and factor in environmental factors into our fundamental analysis however it should be noted that social and inequality factors from a race and gender perspective have far higher priorities and/or weighting than environmental issues. in our portfolios.

 


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.

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

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

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

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.

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

Each and every investment case has its "hurdle rate" or required rate of return adjusted either positively or negatively for the company-specific ESG factors. Our general knowledge of these principles and conventions alert us to ESG factors that may impact a specific company. 

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

Each and every investment has its "hurdle rate" or required rate of return adjusted either positively or negatively for ESG factors. Our general knowledge of these principles and conventions alert us to ESG factors that may impact a specific company.

10.5. Describe how you apply sensitivity and /or scenario analysis to security valuations.

Aeon Investment Management has just recently incorporated scenario analysis and/or modelling into its investment philosophy to analyse current and potential ESG risk factors, evaluate the fund's exposure in comparison to the market, and to test the fund's performance and position under transition scenarios.


We have recently started utilising several quantitative tools such as The Paris Agreement Capital Transition Assessment (“PACTA”) tool, The Transition Pathway Initiative (“TPI”), 2 Degrees Scenario Analysis etc. It should be noted that these PRI-recommended tools do however have limitations. Aeon Investment Management is mainly invested in South African stocks. The recommended tools do not cover a significant number of companies in developing markets e.g. South African-based companies and thus we are only able to obtain a limited amount of information on the analysis of these companies. Companies also only disclose a limited amount of environmental metrics to the public thus further increasing the limitations to the analysis. Aeon Investment Management has raised these issues with the research providers.

10.6. Additional information. [OPTIONAL]


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