Panarchy Partner's investment philosophy takes inspiration from its name. Panarchy is outlined as a scientific concept that explains the interaction between humans, human-created systems, and the environment. It is a concept most commonly used by ecologists and ecosystem experts who study human-environment interaction. In such interactions, resilience and flexibility are sub-concepts that are key for ecosystems to thrive. Drawing from that, Panarchy upends the traditional investment process by flipping sustainability integration as the first step of investment research, followed by financial analysis at the end. Panarchy's process focuses equally on the 4 forms of capital right from the start, and hence it is completely sustainability-led.
As an organization, Panarchy has conducted its own materiality assessment and stakeholder engagement in its first year of operations in 2018. Following from this, we have also initiated our own sustainability strategy and plan to publish our first sustainability report by end 2019.
We start from a universe of roughly 10,000 companies in which we apply the following two filters: i) market cap of US 1.5 billion, and ii) daily liquidity of US 2 million. From this filter, we come down to the list of roughly 2,200 companies. The second step is to filter by a comprehensive governance analysis which looks at issues for example board tenure and independence. From here, the list comes down to about 400 companies where we deep dive to see which companies have done i) stakeholder engagement, ii) at least 3 years of sustainability reporting, and iii) and if they're reporting is compliant with the Global Reporting Standards (GRI) which is the most commonly used international reporting framework for sustainability reporting. We further do a country and sector de-risking in this phase and come down to roughly 90-95 companies. These 95 companies then go through our resiliency framework where we score each company on a scale of 20, and we look at material issues, targets on these issues, and delivery of these targets across the 4 forms of capital, along with innovation and flexibility. From this list of 95 companies, we narrow down to 25 to 35 companies based on their financial return prospects and valuations. We conduct a detailed resiliency analysis of our portfolio companies by looking back in time, i.e. doing the analysis over 3 time periods. The objective here is to see a company define its own sustainability journey and how they then progress over time.