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 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 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
- 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
- Public transport
- Social infrastructure
- IT solutions
- Environmental technologies and solutions
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.