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Boston Trust Walden

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%
55 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
37 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
8 %
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 investing at Boston Trust Walden -- An Overview

The goal of our investment approach is to create diversified portfolios of investments in higher quality companies with sustainable business models and reasonable valuations. ESG integration, the process of assessing the potential financial materiality (or significance) of environmental, social, and corporate governance factors, is an integral part of our process to identify high quality companies. ESG analysis bolsters traditional fundamental analysis by helping us better understand and interpret a company’s past performance (its profitability, growth, stability, etc.), and provides an important lens through which to assess the ability of a company to perpetuate past success. We therefore believe it is important to consider a company's management of significant ESG risks and opportunities as part of our fiduciary duty to all clients.

The integration process has three primary steps: identifying potentially material ESG considerations, based on a company's business model and industry, among other factors; gathering information; and evaluating performance. Analysts use a proprietary framework prompting an assessment of a range of risks and opportunities that may translate into impacts on revenue or expenses, assets or liabilities, or the overall risk of a potential or existing investment.    

ESG analysis frequently contributes to decisions to avoid investments, and occasionally is among the key deciding factors. Conversely, ESG integration also helps us identify companies with practices that can lead to more efficient operations, better labor productivity, heightened brand reputation and customer loyalty, and sensitivity to emerging themes that may create new market opportunities. In turn, these positive attributes lead to an increased probability of a company being able to sustain its success into the future.

Reasons for choosing particular incorporation strategies and how combinations of strategies are used:

ESG factors can influence corporate financial performance. As described above, ESG integration reflects our belief that companies protect and enhance long-term profitability (or sustainability) if they effectively identify and manage ESG risks and opportunities. We believe consideration of ESG factors is part of our fiduciary duty to ensure client assets are invested in a portfolio of securities well-positioned to maximize returns while simultaneously minimizing risks. Hence, ESG integration is implemented across all investment strategies offered by Boston Trust Walden, representing all equities under management.

Some clients bring unique ESG objectives and priorities to the management of their portfolios and therefore require ESG analysis and screening that goes beyond the assessment of materiality of ESG factors. Screening applies to nearly 45% of equities under management.

Thematic strategies are implemented exclusively for fossil fuel free balanced and equity strategies, representing approximately 8 percent of equities under management.

Responsibility for implementation:

In-house ESG research and engagement professionals work side-by-side with traditional securities analysts in assessing prospective investments and sharing pertinent findings. Hence, all securities recommended for purchase have been examined in a comprehensive manner. Existing investments are monitored and reviewed by ESG and traditional securities analysts. To meet unique client and strategy-specific (thematic) priorities and objectives, we devote additional attention to ESG research and portfolio screening consistent with our fiduciary responsibilities and our clients' long-term objectives.

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

See LEI 01.2


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 

Indicate who provides this information 

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

02.4. Additional information. [Optional]

While we do not directly incentivise brokers, we have provided feedback and advice to encourage additional ESG research and analysis. We specifically budget for ESG 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]

Information derived from engagement and proxy voting activities is systematically disseminated throughout Boston Trust Walden:

  • Monthly meetings of the Research & Engagement Committee (consisting of dedicated ESG professionals, portfolio managers, traditional securities analysts, and members of the Office of the Executive Committee) provide a forum for discussion of current engagement and proxy voting activity. Regular updates on climate-related news are also provided.
  • The ESG team prepares quarterly impact reports (for internal and external use) that provide updates on significant outcomes of ESG engagement activities.
  • As needed, ESG updates are provided at weekly Investment Committee and securities research meetings where investment policies and portfolio holdings are discussed and evaluated.
  • Proxy voting research is distributed to the securities analyst assigned to the company for all portfolio holdings.
  • ESG research files are maintained for each company, providing documentation of ESG performance assessments, as well as research sources. These files, which include proprietary correspondence with companies, are located in integrated company research folders available to all employees on a company-wide computer network.

In addition to these formal mechanisms, Boston Trust Walden's ESG engagement and proxy information is shared on an ongoing basis through informal discussion channels inherent in a fully integrated organization.


(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

Exclusionary ESG Screening

While ESG integration is systematically employed across investment strategies, some clients have specific ESG objectives for their portfolios. Boston Trust Walden works with clients to translate their ESG priorities into individually tailored investment portfolios. We have over four decades of experience building portfolios to meet values-based objectives.

We achieve this in three ways:

1. Products & Services Assessment. We exclude companies that generate a certain threshold of revenues from, or are market leaders in, prohibited products and services. 

2. ESG Performance Analysis. One of the core strengths of our in-house team is its ability to assess company performance beyond standard screens. Our analysts seek to understand the company's products and services and evaluate overall performance in four broad categories: corporate governance, human capital management, and environmental and community impacts. Analysts assess performance trends relative to established goals, performance relative to peers, accountability and disclosure, and impacts on stakeholders.

3. Unique Client Guidelines. When meeting with clients, we seek to understand and prioritize their ESG objectives and build a portfolio that meets their criteria. Thoughtful portfolio management is a hallmark of our approach. 

Screened by

Description

See response above. Additional information available on our website at https://www.bostontrustwalden.com/investment-services/impact-investing/.

Screened by

Description

ESG research and analysis at Boston Trust Walden incorporates information on corporate performance relative to internationally accepted/endorsed norms, such as those identified above. Another example is the International Organization for Standardization (ISO Standards), which identifies best practice management standards related to product quality, environmental practices, and corporate responsibility, among other issues.

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

Boston Trust Walden communicates regularly with clients regarding ESG research and screening through periodic written communications (e.g., quarterly reporting, annual impact report) and in-person or telephone meetings. Significant changes are typically made in consultation with clients. Furthermore, we work with our clients to prioritize their ESG objectives and translate them into individually tailored investment guidelines.


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]

Responses to previous questions in the LEI section address many of the points above regarding the assurance of a comprehensive and robust ESG analysis. A few additional points include:

  • Approval of a company on ESG performance requires several steps, with the Director of ESG Investing assuming oversight responsibility. First, recommendations of the ESG analyst incorporate input from consultation with the traditional securities analyst presenting the company for approval. Next, two portfolio managers not directly involved in the ESG research process generally affirm the ESG recommendation, which sometimes leads to additional explanation or research. Finally, companies are approved for purchase, both financially and on ESG characteristics, at weekly meetings of the Investment Committee.
  • The ESG team often communicates directly with companies under consideration for purchase or through engagement with existing portfolio companies on significant ESG matters. In these instances, companies have the opportunity to respond to our ESG assessments.
  • Through internal research, in-house ESG analysts sometimes uncover information inconsistent with representations of independent ESG research providers. In such cases, our ESG analysts usually inform the independent research provider, especially when differences are factual as opposed to judgment calls.
  • The Manager of ESG Integration developed a database, the "ESG Risk Register," that specifically identifies potentially material ESG risks and opportunities for portfolio companies and those reviewed for potential inclusion, enabling systematic review and analysis of the types of risks analysts are identifying across sectors, market cap, etc. 
  • Monitoring ESG practices and performance is ongoing and systematic, including reviews that coincide with a company's financial performance review conducted by traditional securities analysts.

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.

Boston Trust Walden has developed robust compliance procedures to minimize the possibility of breaches in client portfolios. These include both systems-based and manual controls to ensure compliance with portfolio guidelines. Manual controls include weekly team meetings and quarterly formal reviews of strategy by the Investment Committee. Additionally, regular reviews are conducted for prohibited products and services (for clients with screens) and company ESG-related controversies (for all clients). Systems-based controls to assure portfolio conformity to client and strategy guidelines are implemented using Rules Manager (an Advent software product) and trade restrictions.

If a portfolio is found to hold a prohibited security, or if a company's status changed such that it is determined to be an inappropriate holding (e.g., through merger or acquisition), the security is sold in a prudent and timely manner to minimize any potential negative portfolio impact. (Client tax circumstances and specific objectives may override a narrowly-focused investment-based decision to sell.) Furthermore, the situation that led to the breach is analyzed to determine its cause in order to adjust, if necessary, ongoing monitoring and compliance processes. Finally, as appropriate, breaches are disclosed to affected parties.

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]

Boston Trust Walden offers fossil fuel free portfolios for clients seeking to exclude fossil fuel companies from their portfolio. Portfolio strategies vary based upon client objectives (e.g., those excluding fossil fuel companies, as well as those including companies offering products or services with positive environmental impacts).

 

 


(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]

See the response to LEI 01 and LEI 04. The same broad ESG research approach applies for ESG integration, though an assessment of financial materiality is the distinguishing factor in this case. In other words, not every issue we research for screening purposes is determined to be material to the long-term financial sustainability of the company in question.


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]

Along with the following points, please see the additional information in the responses to LEI 01.2 and LEI 05.5:

  • An ESG financial materiality matrix is jointly completed by ESG analysts and securities analysts for every portfolio company. This analysis is included in securities research reports disseminated to all Investment Committee members.

  • ESG information is discussed at weekly Investment Committee meetings.

 


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

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.

10.3. Describe how you integrate ESG information into portfolio weighting.

ESG factors influence portfolio construction decisions, such as industry and sector allocation. For example, climate risk influences overall energy sector allocation, the type of energy companies selected, as well as the relative weightings.

Our portfolio construction process results in a broadly diversified portfolio. When determining position weights, the portfolio management team considers the quality characteristics of a company, including ESG factors, as well as diversification and risk. ESG integration is both exclusionary (ruling out companies with significant risks) and inclusionary (identifying companies with superior performance). Hence, position weights reflect a company's ESG profile, among other factors.

Furthermore, specific ESG priorities of Boston Trust Walden clients will affect portfolio construction decisions. For example, fossil fuel free portfolios often require reweighting and company substitution in order to achieve financial objectives.

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

One input into Boston Trust Walden's revenue and income forecasts is the macroeconomic environment in which the company operates. Important macro ESG factors include climate change, government policies, population demographics, and income distribution, among others. All investments are evaluated in terms of their risks and potential mitigating factors. While ESG analysis does not lead to specific quantitative inputs in forecasts and valuation models, our assessment of the risks and associated company response affects the context within which we evaluate future cash flows of the company. Overall, we believe investors frequently fail to discount sufficiently for these and other risks, thereby providing an opportunity for Boston Trust Walden to identify high quality businesses with superior investment prospects and less risky business models at attractive valuations.

10.5. Describe how you apply sensitivity and /or scenario analysis to security valuations.

We consider investments in a scenario where appropriate, although we do not typically define precise scenario forecasts for individual security assessments. 

10.6. Additional information. [OPTIONAL]


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