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Carnegie Fonder AB

PRI reporting framework 2020

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

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.

Carnegie Fonder is an independent fund management company that was founded in 1988. All our funds are actively managed with the purpose to create financial security for children, pension savers, foundations and institutions. We achieve this through our philosophy of focused value investing.

Focused means that the funds are concentrated to a limited number of securities. We do not invest in a stock simply because it is included in an index, but only if we really like the company.
Value investing means that we invest in well-managed companies that are undervalued. There are lots of good companies, but not all of them are good value. Behind each investment, we conduct a thorough analysis of the business model, finances, sustainability issues and management.

The world is rapidly changing, with megatrends like migration, climate change, scarce resources, shifts in technology and new regulations. By working with sustainability in a structured way, we can identify the companies that are well equipped for the challenges of the future. To that end we have developed a framework for responsible investments consisting of six key resources:

1. Commitments and collaborations - for instance membership in PRI, UN Global Compact and Swesif but most of all informal collaborations with other investors.

2. Responsible Investment Board - Sets the broad framework and ensures proper implementation of ESG-factors in the management of the funds as well as working as a governing body for company engagements.

3. Training and incentives - All portfolio managers, analyst and sales staff are educated on ESG-related issues. Incorporating ESG-factors are stated in portfolio managers work descriptions with annual goals formulated related to ESG that are subject to incentives in the form of variable salary.

4. Screening and sector exclusions - We require all holdings to comply with international norms, such as the UN Global Compact and our funds also exclude certain sectors such as weapons and tobacco production. Holdings are screened prior to investment with ongoing monitoring and bi-annual screenings from an external provider.

5. Internal analysis, CF THOR - Fundamental ESG-analysis incorporating both qualitative and quantitative measures using our proprietary tool, CF THOR. This analysis is performed on all holdings, both bonds and equities and its outputs are integrated in the financial analysis, for instance influencing views on future revenues and costs for investee companies.

6. Shareholder engagement - We are responsible owners which include voting on annual general meetings, serving on board nomination committees and engaging with the investee companies. We distinguish between reactive dialogues which typically happen after we are notified of potential non-compliance with internation norms and proactive dialogues to express our opinions and expectations and encourage our holdings to be more structured in their sustainablity work and integrate sustainability into all aspects of their business.

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

The six resources we have outlined in LEI 01.2 are interconnected, for instance conclusions or questions arising from the internal analysis are used as a basis for company engagements, screening and sector exclusions are also checked in the internal analysis process for new investments. The Responsible Investment Board sets targets for, among other things, shareholder engagements and acts as support and governing body for the investment organization to handle any uncertainties regarding norms and sector exclusions, ensure proper training and usage of the internal analysis tool.


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 

02.2. Indicate whether you incentivise brokers to provide ESG research.

02.3. Describe how you incentivise brokers.

As active managers, we have to make a decision on how to divide our research budet among our brokers. We require substantial and independent research from the investment banks we engage. ESG competence is one of the parameters where thorough expertise is encouraged and rewarded in our quarterly broker review.

02.4. Additional information. [Optional]

ESG information is obtained directly from companies, e.g. via their annual reports, Bloomberg, CDP reportong, websites and presentation material as well as through written correspondence, telephone conferences, site visits and other meetings between company management and our fund managers. We also use ESG research from investment banks, who to an increasing extent include ESG issues in their research.


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]

We have an engagement log in which the portfolio managers and analysts log their interactions with companies, including type of issue (E,S and/or G), description of the issue and any results or follow-up. Pwoxy voting information is made available via the system Proxyedge, provided by Broadridge. This system contains information on annual general meetings for all portfolio companies, issues to be voted on as well as a reporting module for voting statistics.However, Carnegie Fonder does not apply third-party voting advice and all voting decisions on individual agenda items are analysed and prepared by our portfolio managers.


(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

We exclude companies involved in controversial weapons, e.g. cluster bombs and landmines, adult entertainment, alcohol and tobacco in all funds. Potential exposure to exluded sectors is checked in an external database managed by our service provider Sustainalytics before investment (pre-screening) and reconfirmed by the same provider bi-annually in the form of full screening of all fund portfolios (reconfirmation). For a full list of exclusion criterias and definitions, please see https://www.carnegiefonder.se/investeringsfilosofi/4-screening-och-exkludering/ (only available in Swedish at this point in time).

Screened by

Description

As active managers, we do our best to identify and avoid companies that behave improperly. In addition to maintaining close and regular dialogue with our holdings, we engage an external consultant to review our portfolio in terms of adherence to internationally agreed and generally accepted conventions and norms. This is conducted before we invest, reconfirmed twice annually in the form of full screening of all fund portfolios as well as alerts of any allegations in between the formally scheduled screenings.

If we receive information that a holding does not live up to our requirements, the Responsible Investment Board takes action in consultation with the relevant fund manager. We have a number of possible courses of action:

  • The manager seeks additional information and discusses the holding with the Responsible Investment Board.
  • The manager contacts the company with regard to our issues.
  • Carnegie Fonder’s CEO makes more formal contact with the holding’s CEO or chairman.
  • We contact other shareholders for joint ownership dialogue.
  • If the response is not satisfactory, and the company does not show an adequate willingness to change, we can choose to divest the holding.

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

The screening criteria is evaluated on an ongoing basis and at least annually by Carnegie Fonder's Responsible Investments Board. If changes are made, clients are notified on our homepage.


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.

If a breach is identified the Chief Investment Officer (CIO) is notified. The CIO discusses the matter with the concerned portfolio manager who gives his/her view of the company and the violation. The CIO reports to the Responsible Investment Board. If the portfolio manager, the CIO and the board accept the company’s action plan for remediation of the issue, the company will not be divested. If the response is not satisfactory, and the company does not show an adequate willingness to change, we may choose to divest the holding.

06.3. Additional information. [Optional]


(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]


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]

All investment decisions are taken by the fund managers, who conduct their own analysis. Our CF THOR tool integrates sustainability into traditional financial analysis. 

CF THOR is a tool for sustainability analysis developed by Carnegie Fonder's fund managers and analysts in 2019. Its purpose is to identify risks and opportunities from a sustainability perspective, and to develop better talking points in meetings with company management teams.

CF THOR is employed for all holdings, both equities and debt, and uses 100 questions and checkpoints, of which 31 are qualitative and 69 are quantitative. It also considers the companies' de facto work with the 17 Global Sustainable Development Goals.


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

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis.

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

We use our internal ESG analysis tool which identifies risks and opportunities in the company's products and/or strategies in the short, mid and long term which in turn may influence our assumptions around for instance growth or profitability. The conclusions from the tool could also influence valuation multiples due to, for instance, perceived lower or higher investment risk. The impact of any of these adjustments or the influence the ESG analysis has on the valuation is company-specific and we believe it must be, there is no "one-size fits all" with regards to valuation adjustments influenced by ESG considerations.

10.6. Additional information. [OPTIONAL]


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