This report shows public data only. Is this your organisation? If so, login here to view your full report.

Gresham House plc

PRI reporting framework 2020

Export Public Responses
Pdf-img

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%
90 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
10 %
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.

We aspire to invest in businesses which have (or can have) a positive impact and will drive improved performance during our stewardship wherever possible.

We have used our significant experience in listed equity, along with other asset classes expertise and the support of external advisors, to develop a robust approach to Sustainable Investment which aims to drive value within our portfolio, and which minimises risks (reputational, financial or other) for ourselves and our investors. We believe our approach, which combines negative screening with ESG integration, strikes an appropriate balance of rigour and flexibility to deploy our funds in a sensible and pragmatic manner.

Within our Listed Equity division, we have always taken into consideration the implicit and explicit impact that ESG issues could have on the value of our shareholdings. This year, we have taken steps to define this approach more formally such that it can be implemented with consistency, confidence and rigour. This includes: an asset-class specific policy, which sets out in overview our integration approach; expert tools to assess risk, monitor progress and report change; and the establishment of KPIs to track performance. 

Our listed equity policy sets out a series of negative screens, including, in the case of certain funds, specific  'no go' areas, and a set of cautionary areas in which investment will only proceed if we are clear on the balance of ESG and financial risks/benefits.

Our system places the principles of ESG integration at its core because we believe it to be intrinsic to driving value within our investment. This year, we have developed an improved set of tools, which the team has been trained to implement, to help our investment executives assess ESG risks and opportunities alongside traditional financial performance metrics. We will apply this approach universally to all investments, irrespective of sector or geography – but guidance within our tools shows how the materiality of issues could change in different activities or parts of the world.

We will use our expert ESG asset management tool, which is content rich and signposts issues for consideration at pre-investment, from deal inception to help guide our decision-making on portfolio composition and weighting. Ultimately all our pre-investment assessment aims to determine how aligned an incumbent management team (and, where relevant, other major shareholders) is likely to be with the Gresham House perspectives on good business. While this is often less tangible than some other performance metrics, it gives us a good indication of how aligned our perspectives will ultimately be, and therefore how successful our involvement as a shareholder might be. Implicit within this is a management team’s attitude to the long-term sustainability of the business model, including macro issues such as climate change, as well as shorter-term or more local issues which could affect business growth e.g. staff retention and stakeholder engagement. 

Within our team, all personnel are tasked with responsibility to implement the commitments of our asset class policy, and they have been trained in this policy and the use of our expert tools accordingly. 

Our decision-making is reviewed at Investment Committee for each proposed investment, and documented within each Investment Committee paper, and our overall portfolio is reviewed on a regular basis which incorporates tracking of any existing, new or emerging material ESG issues.

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


LEI 02. Type of ESG information used in investment decision (Private)


LEI 03. Information from engagement and/or voting used in investment decision-making (Private)


(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

For our positive screening, we have undertaken ESG training for our investment managers such that they understand what constitutes best in class ESG performance in each of the key ESG themes. We recognise, though, that as an active investor we are not always looking for best in class performance at the outset but instead for the potential to drive quality performance which will be critical to value creation.

This year we have taken steps to formalise our approach such that it is rigorous and documented by developing our bespoke asset class tools. These contain questions on the various ESG themes within our SI Framework, and the sub-topics which hang off these themes. The questions are backed up by a series of guidance notes which provide detailed context on what would be considered as best in class for various sectors and activities, including how these can vary on a geographical basis.

This will allow our team to screen for risks and opportunities around best in class performance quickly and systematically. We note, though, that as a generalist investor, we have to rely on a wide-range of information and therefore our internal capabilities are critical to the application of these principles.

Screened by

Description

Please see above.

Screened by

          Sustainability Framework of the Sustainability Accounting Standards Board
        

Description

Where utilised, the screen examines topics within the following framework, which maps closely onto the Global Compact and the ILO Conventions: Environment: Exposure to and management of Carbon, Emissions & Climate Change; Pollution & Waste; Natural Resources and input materials; Social: H&S risks and management; Employment risks and practices; Marketplace responsibility, inc product risks; Supply Chain Sustainability, inc possible child and forced labour and environmental degradation; Community, inc impacts and indigenous rights violation; Governance:  Board structure and processes for probity; Business ethics, inc anti-corruption; Risk and Compliance; Commitment to Sustainable Business.

Use of the tool creates a graded pre-investment risk-opportunity profile that is used;

  • To decide whether to invest or not on the basis of what is known
  • To guide our influence on the asset management team over the lifetime of the investment with regard to material ESG matters
  • To guide monitoring and reporting of material ESG matters.

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

Clients and key counterparties would be informed of any substantial changes to our screening protocols, as soon as the change is implemented. Any more minor changes are brought to the attention of our clients/beneficiaries by:

  • Quarterly Board Meetings
  • Regular face to face interactions within periodic client meetings
  • Updates during the AGM

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.

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

05.5. Additional information. [Optional]

Our investments have always been subject to a pre-investment due diligence review which incorporates ESG issues, but this activity has been strengthened during 2019, as described below. Where ESG issues or potential issues are identified, and considered likely to be material in the context of our proposed investment, we undertake comprehensive due diligence to understand both the risk and, wherever possible, how to manage or mitigate it during the lifetime of our investment.

We believe that the work we have undertaken this year has helped mature our processes in line with the progressive Responsible Investment agenda and to a standard which will give us a future-proof, comprehensive and robust approach. This predominantly takes the form of a structured asset management deal tool, designed to support implementation of our asset class specific Public Equity Sustainable Investing Policy, and our company-wide thematic Sustainable Investment framework.

The tool has been developed in close cooperation with our external ESG advisers, and incorporates as series of prompts and checks as well as a set of focused questions designed to proactively identify areas of potential concern. It contains links to content-rich guidance which is based on both global and local ESG risks, trends, guidance and considerations. This will be updated on a periodic basis as and when required.

Our team is encouraged to undertake asset-specific research as needed on potentially material ESG risks (and opportunities where relevant) as part of the intelligence gathering aspect of the tool. This could include industry papers, guidance, guidelines, etc and/or discussions with management as needed. Where necessary, we would rely on the support and guidance of external experts to aid our research.

We keep a continuous watching brief on a number of key information sources to scan for new and emerging ESG issues:

  • The mainstream media including consumer trends, public interest and campaigns 
  • The industry press, regulation, guidance and guidelines specifically associated with sustainable investing
  • UN PRI Industry events and webinars
  • Periodic topic-specific updates from our external ESG advisors, backed up by refresher training.

Our team has been trained in the use of our internal tool by external ESG experts.     

We are also in the process of undertaking a retrospective documented review of our existing portfolio to identify any material ESG risks which pre-date the adoption of our Sustainable Investing Policy and principles. 

 


LEI 06. Processes to ensure fund criteria are not breached (Private)


(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]

As our LE funds invest across sectors, we have developed a thematic Sustainable Investment framework which helps identify broad themes across which material ESG factors could be clustered. We have made this publicly available on our website, and covers the following

  • Environment: carbon (including climate change), emissions & pollution; natural resource management; and waste management;
  • Social: employment, health, safety & wellbeing; supply chain sustainability; community care & engagement; and marketplace responsibility; and
  • Governance: governance & ethics; risk & compliance; and commitment to sustainability. 

The f provides a thorough and replicable structure with which our team can rapidly filter material issues on which to undertake focused research.  

We have worked with external ESG experts to develop:

  • A set of themed mind maps which build on each of the individual topics within our SI framework giving depth 
  • A set of structured questions in our ESG tool carefully designed to prompt thinking from our investment managers around  ESG factors.
  • A mechanism to centrally track mitigating actions which will help reduce material ESG risks and, in the longer-term, progress ESG opportunities for value creation.

Our team has been trained in these processes to ensure that they have the capability to implement them.


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.

09.4. 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]

In the last 12 months, we have updated and improved processes which are backed by supporting tools, and expert training programmes. This includes our bespoke asset class management tool which is designed to run across the life cycle of each investment.

Moving forward, all information will be held in this tool and saved in a central location on our system so that it is accessible to all relevant individuals. This information is now being embedded and summarised in our wider processes including:

  • Initial Investment Appraisal form;
  • Gresham House's deal flow tracking system;
  • Investment Committee meetings;
  • Ongoing conviction scores.

Our updated processes are consistent with the four key stages of ESG integration which have been set out by the PRI, specifically:

  • Qualitative Analysis – via our bespoke tool, augmented with additional information from our wider Initial Investment Appraisal form;
  • Quantitative Analysis – via our financial forecasting and valuation models, including our conviction scoring which is periodically reviewed;
  • Investment Decision – taken and documented in our IC meetings/papers and specifically including a summary of material ESG considerations; and 
  • Active ownership – regular management meetings, with tracking of relevant ESG materials which are implicit in company valuation, updaing conviction scores and voting decisions

LEI 10. Aspects of analysis ESG information is integrated into (Private)


Top