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Ellerston Capital Limited

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%
30 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
65 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
5 %
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.

ESG is incorporated into our investment process in two ways:

  1. Integration of ESG considerations in the investment process – research, analysis & investment decision making
  2. Portfolio screening – negative and positive as required by the client

Integration of ESG considerations in the investment process

Each of our investment teams has its own investment process for its particular strategy, which is determined by each Portfolio Manager. However, ESG is consistently integrated into each team’s analytical processes, with the purpose being to identify and consider material risks and opportunities related to the ESG factors.

Our teams have adopted a common “ESG Matrix” framework for integrating ESG issues into their company analysis, alongside fundamental considerations. The key features of the ESG Matrix are as follows:

1. Focus on measurable and/ or objective data to ensure assessments are consistent and unbiased, emphasising:

  • Environment: absolute levels and trends in factors including but not limited to carbon emissions, water consumption and waste production.
  • Social: ethical behaviour, staff turnover levels, operational health and safety performance, diversity and community engagement.
  • Governance: Governance structures and processes, Board of Director (“Board”) meeting attendance, Board skills and gender diversity, management remuneration structures (incentive alignment and hurdle levels), historic value creation / destruction of management and Board.

2. For each company, qualitatively assess and quantitatively rate each E, S and G aspect of the company in terms of:

  • Performance – rate as good, acceptable or poor, and
  • Materiality – rate as low, medium or high.

3. Add the scores for the individual E, S and G matrices into a single, overall company score. The worst scores are for companies with high materiality and poor performance. Conversely, the best scores are for companies with high materiality and good performance.

4. Include ESG aspects in ongoing company monitoring to detect improvements or deterioration of scores over time, and configure into our investment views accordingly.

 At a minimum, the output of the ESG matrix is considered alongside all other investment considerations as one component of the investment process for determining a company’s eligibility for a portfolio. Some Portfolio Managers take a further step and choose to incorporate the impact of ESG by increasing the discount rate and therefore reducing valuation estimates based on poor ESG assessments, while others go yet further and use a poor ESG score as a “knock-out”, which renders a company un-investable until the ESG profile improves. In some cases, our Portfolio Managers have added consideration of ESG themes from a “top-down” perspective to influence country and/or asset allocation.

Portfolio screening

Portfolio screening is a rigorous process which enables portfolio managers to explicitly exclude or include companies with specific business activities in the portfolios that we manage. Where our client mandates require, we use screening to determine the investment universe for that particular portfolio.

Negative screens determine companies that are to be excluded from a particular portfolio’s investment universe. The Global Industry Classification Standard (GICS) (MSCI) allocates every listed company to a particular broad economic Sector and then three Industry Groupings. Particular business activities are excluded by identifying the relevant GICS sector and Industry Groupings, and removing these and their constituent companies from the investment universe. Materiality thresholds (e.g. % of revenues from a particular activity) are used to safeguard that companies who fall outside of a sector but that are exposed to the particular activity are also excluded.

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

The only team that uses a combined strategy (integration and themes) is the Asia ex Japan and India Equities team which also considers ESG themes from a "top-down" perspective to influence country and/or asset allocation.


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

Where our client mandates require, we use screening to determine the investment universe for that particular portfolio. The majority of our portfolios are screened to exclude coal and coal mining exposure.

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

Screening criteria are agreed with clients at the beginning of the mandate. Any changes thereafter would result from discussions with the client. For institutional clients (the majority of of assets under management) the client is responsible for communication with their beneficiaries. For retail clients, details regarding screening and any changes would be communicated via the regular periodic fund reports (monthly).


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.

05.5. Additional information. [Optional]


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]


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.

          Our proprietary ESG matrix scores each company on ESG Performance and materiality and is reviewed as part of decision-making and monitoring.
        

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

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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