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Osmosis Investment Management

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.

Osmosis launched in 2009 and is an award-winning sustainable investment manager based in London.  Osmosis has developed a proprietary model of resource efficiency (the “MoRE Model”) looking at the world’s largest public companies in developed global markets which generates a Resource Efficiency Factor Score which Osmosis calculates on a systematic basis using a proprietary resource efficiency valuation metric derived from observed amounts of energy consumed, water use, and waste created relative to revenue generated for each company in this global large cap universe.

Osmosis  takes a rounded approach investing through the whole economy, addressing both supply and demand, targeting excess return whilst simultaneously delivering better environmental foot prints to relative benchmarks.

Objectively analysing corporate sustainability data allows us to identify an uncorrelated source of alpha in publicly listed companies. The identification of companies that are measuring, managing and reducing their resource consumption while capitalising on this rising demand will deliver greater shareholder returns over the longer term.

This informational advantage when applied to a systematic quantitative approach creates investment portfolios that deliver superior risk-adjusted returns over the long-term while significantly reducing their draw on natural resources and so investor’s holdings have a much lower environmental footprint relevant to market benchmarks.

Sustainability and excess return need not be mutually exclusive.

 

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

The MoRE Model analyses the disclosing universe of public companies, i.e. the world’s largest public companies that disclose sufficiently on their energy consumption, waste creation and water consumption, in the public domain through their annual reports and sustainability reports. This data is checked for completeness and accuracy and then entered into the Model of Resource Efficiency database making it part of the disclosing universe. Only companies which disclose on GHG Equivalent Emissions, water consumption and waste generation will be scored. These factors are combined and calculated into a Resource Efficiency Factor Score, i.e. for each stock within the universe of companies disclosing environmental and resource efficiency data a unique multi-factor score is calculated. The multi-factor score is generated by combining the individual factors of greenhouse gas emissions, water use, and waste generated which are used to quantify a company's resource efficiency. The Resource Efficiency Factor Scores are analysed within their sector and re-calculated in respect of each company upon publication of its annual financials (including its environmental report). Stock selection is based on a systematic selection of resource efficient stocks across all sectors as identified by the model.


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 

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

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]


(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

Osmosis systematically identifies relative resource efficiency amongst global large caps. Resource efficiency is defined as the amount of energy consumed, water consumed and waste created in order to generate economic value. Osmosis conducts such analysis across all economic sectors excluding the financial sector. Depending on the strategy, companies that do not disclose environmental metrics will not be included in the portfolio construction universe.

Screened by

Description

Osmosis systematically identifies relative resource efficiency amongst global large caps. Resource efficiency is defined as the amount of energy consumed, water consumed and waste created in order to generate economic value. Osmosis conducts such analysis across all economic sectors excluding the financial sector. Depending on the strategy, companies with the best resource efficiency scores within their respective sectors will be selected for inclusion in the investment portfolio.

Screened by

Description

Our strategies contribute to several of the UN Sustainable Development Goals, directly and indirectly :
▪ Goal 6: Supporting those companies that avoid wasting water and use water most efficiently
▪ Goal 7: Renewable energy is a key contributor to resource efficiency
▪ Goal 9: Technological progress and innovation is at the basis of resource efficiency
▪ Goal 12: Resource efficiency is about sustainable production, doing more and better with less, this will increase 
competitiveness 
▪ Goal 13: We identify those companies that are leading in their sector on taking action to reduce their carbon footprint
▪ Goal 15: Careful management of less energy, less water and less waste is a key feature of a sustainable future

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

Osmosis updates the Model of Resource Efficiency database on a monthly basis so that any corporate disclosures are continuously updated. Due to the systematic rules of the MoRE investment process, investors are not updated, but depending on the strategy, such resource efficiency score will determine on inclusion/exclusion or relative weight in the strategy. Clients may see the relative improvement of the portfolios optically through an in-house resource efficiency metric which graphically evidences the relative resource efficiency score of a portfolio to the respective benchmarks.


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]


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.

Osmosis selects companies based on their relative resource efficiency. Osmosis  process will not breach limits due to the systematic process which drives the model and subsequent portfolio constituent selection.

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]

Osmosis focuses solely on the productive use of resource within the operations of a business relative to the economic value it generates.The productive use of resource is identified through three publicly disclosed, objective and uncorrelated factors:
• Energy Consumption
• Water Consumption
• Waste Creation


These three key factors are private costs accountable to the balance sheet, focussing on the operational performance of the business.  Utilising these internalised factors allows us to focus purely on the economic benefit to the balance sheet of using less to produce more.
Management teams that monitor, manage and reduce their resource consumption relative to the economic value created are ultimately positioning their business for long-term and sustainable economic growth.  By using objective data, Resource Efficiency identifies successful management teams actions over their intent, successfully delivering sustainability to the bottom line.

 


(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]

We do not target S & G but we have seen that companies who drive environmental performance to the balance sheet tend to rank highly across these factors.


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]


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


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