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DNR Capital

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.

For our Socially Responsible portfolio, we apply a screening and integration process over 3 stages:

1. Our best stock ideas are screened against four primary metrics:
     - Must not be involved in the production, distribution and sale of pornography as part of the core business.
     - Must not be involved in owning or operating a gaming related business, or manufacture and supply of gaming equipment and systems as part of the core business.
     - Must not be involved in the supply and distribution of weapons components as part of the core business.
     - Must not be involved in the manufacture and distribution of tobacco-related products as part of the core business.

In addition to the above, we also cater to clients demands for the screening out of Fossil Fuels, Animal Testing or Cruelty, Obesity and other ESG issues.

2. The companies that we are seeking to add, or that we currently hold, are then subject to an internal ESG Research framework, which grades each stock on a 5-point scale.

The analysis is performed by the analyst that covers the company in question, where they source information from company disclosures, an internal ESG resource, broker research and Sustainalytics research.

The framework takes in to consideration many factors including:
Environmental:
     - Environmental impact of operations
     - Exposure to cost of pollutants
     - Investment in environmental efficiencies
     - Environmental management frameworks
     - Environmental incidents and controversies
     - Waste and hazardous materials processing
     - Supply chain sustainability
     - Climate change Awareness and preparedness

Social:
     - Social incidents and controversies
     - Human capital management
     - Operational health and safety
     - Supply chain ethics
     - Code of conduct enforceability
     - Product incidents and controversies
     - Data privacy incidents and controversies

Governance:
     - Business structure and activity alignment
     - Company culture
     - Board characteristics
     - Equity ownership
     - Remuneration and incentives
     - Capital management
     - Stewardship of the business
     - Risk and control framework
     - Shareholder communication
     - Governance incidents and controversies

In addition to the scoring framework, we also consider additional merit to companies that are involved in socially responsible activities such as:
     - Renewable resources
     - Waste management
     - Healthcare
     - Public transport
     - Social infrastructure
     - IT solutions
     - Environmental technologies and solutions
     - Education
     - Compliance

3. Once a company has been scored by the analyst, the research is put to the Socially Responsible Committee on a monthly basis, where the analyst is asked to present their case, with reports from brokers and Sustainalytics provided for context and comparison. In addition to its function of approving changes to the portfolio from and ESG perspective, the Committee also:
     - Reviews the portfolio's ESG metrics
     - Reviews the ESG metrics of the individual companies in the portfolio
     - Discusses ESG thematics presented by the ESG analyst and how they could impact the portfolio or prospective additions to the portfolio
     - Discusses engagements that have occurred during the month and engagements that should be organised for the month ahead given the content of the meeting.

We believe that this process succeeds in three key areas:

1. We eliminate securities that have structural ESG headwinds as a result of their core business activities.
2. We ensure that each analyst is considering a wide range of ESG issues when modelling their business and establishing their thesis.
3. We maintain oversight of the process and ensure that there is sufficient rigour around the ESG quality of the portfolio.

 

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

DNR Capital's Socially Responsible portfolio avoids investment in companies that are judged to have a direct involvement in pornography, gambling, armaments, tobacco, alcohol and obesity.  We form a judgment as to whether or not the activity in question forms a direct or core part of the business.  By "direct" or "core" we mean that the company is involved in the manufacture, supply or distribution of the product or the provision of the service. We also extend this to other areas including Fossil Fuels at the client's request.

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

​The screening criteria is subject to annual formal reviews but from time to time we will re-evaluate the criteria if there is confusion as to whether a company falls into the Direct or Indirect categories. Those categories are relevant to the screening of:

  • Pornography
    • Direct - Production, distribution and sale of pornography as a core business
  • Gaming
    • Direct - Core business of owning or operating a gaming related business or manufacture and supply of gaming equipment and systems.
  • Armaments
    • Direct - Supply and distribution of weapons components to Defence Forces or any other business/individual.
  • Tobacco
    • Direct - Manufacture and distribution of tobacco-related products.

Our ESG policy is available publicly on our website.


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 (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.

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.

09.4. 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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