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Aeon Investment Management (Pty) Ltd

PRI reporting framework 2020

You are in Strategy and Governance » Investment policy

Investment policy

SG 01. RI policy and coverage

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

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

At Aeon Investment Management, our investment philosophy is based on the conviction that significant inefficiencies can occur in the market, at different times across a range of asset classes and strategies. A structured investment process which is able to monitor and value a wide range of opportunities is best able to capitalise on these inefficiencies.

We focus on the rigorous process of asset valuation and return modelling, using both fundamental and quantitative analysis. Since it is not possible to perfectly predict future market movements, our process guides us in constructing portfolios that can deliver outperformance of the benchmark in a range of scenarios, over a market cycle.

Aeon Investment Management’s approach to responsible investment is 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 a greater conviction in valuation and risk-reward assessment and we are better able to identify security mispricing.

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

Responsible investment is defined as the integration of environmental, social and corporate governance (ESG) considerations into the investment management processes and ownership practices with the belief that these factors can have an impact on financial performance.

Aeon Investment Management’s motive for integrating responsible investment is to set a clear framework for integrating Environmental, Social and Governance (ESG) issues into investment decision making. We believe that an analysis of ESG factors, in combination with fundamental research, delivers insight that enhances investment decisions and returns. Central to our investment philosophy is the explicit recognition that sustainability factors directly affect long-term business profitability. By incorporating ESG factors we have a greater conviction in valuation and risk-reward assessment and we are better able to identify security mispricing.

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.

We have recently updated and published an Environmental Policy, Social Policy and Governance Policy on our website which outlines our approach to responsible Investing using ESG integration. These policies are available on our website (https://www.aeonim.co.za/esg-policies/)

 

01.6. Additional information [Optional].

          It should be noted that a “one size fits all” approach to investing might not be suitable for e.g. in reducing carbon emissions in a developing economy. The job losses that would occur has far more negative social and inequality impacts in an environment that is reducing its fossil fuels. Aeon Investment Management follows a holistic approach to investing and ESG integration.
        

SG 01 CC. Climate risk

01.6 CC. Indicate whether your organisation has identified transition and physical climate-related risks and opportunities and factored this into the investment strategies and products, within the organisation’s investment time horizon.

Describe the identified transition and physical climate-related risks and opportunities and how they have been factored into the investment strategies/products.

Aeon Investment Management recently developed an environmental policy to create a framework that identifies companies’ current and potential risk factors and to quantitatively integrate these factors (depending on disclosure) into the investment philosophy to ensure responsible investment.

We aim to identify companies that actively reduce their carbon footprint, disclose their emissions and have an ongoing positive effect on the South African society and the global community at large.

The rapid awareness of the effect that companies have on the environment has resulted in an increased requirement from investors (and other stakeholders) for companies to disclose their environmental metrics e.g. GHG emissions. Aeon Investment Management has created a framework that identifies a broad range of company risks. These risks may not necessarily be applicable to all companies and do not encompass all the risks that companies may face.

In determining whether to continue to invest in a company, Aeon Investment Management undertakes an analysis of the company by considering the following:

1. Disclosure

          We determine the company’s level and relevance of environmental metrics disclosure:

  • Does the company disclose its GHG emissions, energy consumption, water usage and waste production in its Sustainability/ Integrated Report?
  • Has the company disclosed the trends in its GHG emissions, energy consumption, water usage, and waste productions to determine any changes (positive and negative) to the above-mentioned factors and monitor the implementation and continued practice of their sustainability policies?
  • Going forward, has the company disclosed a plan to reduce its environmental impact?
  • If applicable, has the company recently or historically had any environmental catastrophes such as hazardous spills and subsequent fines? Has the company disclosed the fines and programs they have implemented to rehabilitate the damage caused by these catastrophes?

2. Water (if applicable)

  • Has the company disclosed its water usage and the amount of water it has recycled in its Sustainability/ Integrated Report?
  • Does the company have an extensive policy (-ies) in place addressing the reduction of water usage and/or recycling water?

3. Emissions

  • Has the company disclosed its GHG Scope 1, 2 and 3 emissions in its Sustainability/ Integrated Reports?
  • What is the company’s carbon emissions per unit produced relative to its competitors?
  • What initiatives has the company implemented to lowering its emissions and reducing its carbon footprint?
  • Does the company fully and publicly endorse the Paris Agreement? What formal commitments have been implemented by the company towards combating climate change?

4.Waste (if applicable)

  • Has the company disclosed the level of tailings and overburden waste it produces?
  • Does the company produce any hazardous waste and how has this been eliminated?

5.Energy

  • Has the company disclosed its electricity usage or relevant energy benchmark metrics?
  • Has the company implemented any renewable energy initiatives within the business?
  • What is the company’s electricity usage per unit of production and what this historical trend of this production?

6.Remuneration

  • Is the company’s remuneration policy linked to sustainability practices?
  • Are the executive directors’ remuneration (short-term, long-term incentives, key performance indicators, etc.) based on appropriate and/or relevant benchmarked environmental target metrics?

 

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

Describe the associated timescales linked to these risks and opportunities.

Aeon Investment assesses the likelihood and impact of these risks on both a qualitative and a quantitative level (limitations). We combine research accumulated from the company in question and other resources sources, and we assess the extent and degree of the risk. We also utilise a number of other quantitative tools such as The Paris Agreement Capital Transition Assessment (PACTA) tool, The Transition Pathway Initiative (TPI) and 2 Degrees of Separation. These tools, however, have a significant reliance on companies disclosing their environmental metrics and not all companies disclose these metrics or are aware of the impact their operations have on the environment.

An ESG risk premium is then applied to our analysis and overall valuation. The Equity Risk Premium is adjusted for the level of ESG risk. We continually monitor any changes to these climate risks.

Given that Aeon Investment Management largely invests in South African companies, we have had to rely on global timescales such as the Paris Agreement, other available global conventions and frameworks that have target carbon emissions and local jurisdiction regulation timescales. We adopt these timescales into our own investment time horizon and subsequently investment strategy.

01.8 CC. Indicate whether the organisation publicly supports the TCFD?

01.9 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

Aeon Investment Management’s approach to responsible investment is Environmental, Social & Governance integration. The objective of the 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. Our in-house analysts and Portfolio Managers keep track of market news and filings of corporate governance issues of companies listed on the Johannesburg Stock Exchange (JSE). The analyst reports 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.

When analysing environmental risk factors, analysts and portfolio managers at Aeon Investment Management will identify factors that are relevant to the company in question. Further research on the identified environmental risk factors is then conducted to determine their impact on the company, its employees and on the environment. If there is limited disclosure by the company on these risks, an engagement process is then commenced requesting this information from the company’s management team.

In addition, the following online tools to account for and integrate company climate risks into the final analysis:

  • The Paris Agreement Capital Transition Assessment (PACTA) Tool
  • The Transition Pathway Initiative (TPI)
  • 2 Degrees of Separation
  • Carbon Tracker

Where the data is easier to model e.g. carbon tax as it is clearly defined in terms of cost, these have been built into the model. An example would be PPC Cement, an African cement producer. Where the data is more qualitative in nature, the idea would be to quantify the risk once analysed and repercussions understood e.g. what is the discount applied to a company mining coal as the valuations in that sector have structurally changed.

In summary, once a thorough qualitative and quantitative research is conducted, an ESG risk premium is applied to the financial company valuation. This changes the equity risk premium applied i.e. increase the hurdle for investment for any potential ESG risk.

 

1.10 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.


SG 02. Publicly available RI policy or guidance documents

 

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

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02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

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02.3. Additional information [Optional].

Aeon Investment Management's detailed ESG Annual Reports are available on request. Our engagement activities and proxy vote decisions can be accessed on our website upon request (https://www.aeonim.co.za/engagement-activities/).


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

Aeon Investment Management is committed to ensuring that all business is conducted in accordance with good business practice. To this end, Aeon Investment Management conducts business in an ethical and equitable manner that safeguards the interests of all stakeholders to minimise and manage all real or potential conflict of interest (COI). Aeon Investment Management and its representatives must therefore avoid (or mitigate where avoidance is not possible) any COI between Aeon Investment Management and a client or its representative and a client. 

Aeon Investment Management abides by the CFA Institute and FSB conflict of interest policies. Refer to publicly available documents published by the CFA Institute and Financial Services Board.

03.3. Additional information. [Optional]

Our Conflict of Interest Policy can be found online (https://www.aeonim.co.za/wp-content/uploads/2018/05/Aeon-IM-Conflict-Of-Interest-Policy-1.pdf)


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within investee entities.

04.2. Describe your process on managing incidents

If an incident occurs within the portfolio companies, Aeon Investment Management would engage and make contact with the company to evaluate the impact of the incident and request what steps the company has taken to resolve the issue. Aeon Investment Management would consider disinvestment if the steps the portfolio company takes place shareholders at a disadvantage. We would also ensure that we publish these incidents in our ESG Report and quarterly Newsletter.

Aeon Investment Management's management team regularly reviews business dealings to ensure that no conflict of interest arises. 


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