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Baillie Gifford

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%
98.55 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
1.45 %
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.

Our primary method for incorporating ESG factors is through integration. We believe it is easier to generate out performance for our clients by assessing a company’s prospects for sustainable growth rather than by predicting short-term share price movements.

Management quality and their attitude to a broad range of stakeholders and externalities (social, environmental, cultural and political) are considered as a key part of analysing the five to ten year growth opportunities for a company. Poor ESG performance over this period will impact a company’s reputation with all stakeholders (customers, suppliers, employees, regulators, investors) which can ultimately impact the quality of a company’s earnings.

At Baillie Gifford, we believe that integrating ESG considerations into our research and engagement makes us better investors. As active growth managers with long-term investment horizons and low turnover, we seek companies with sustainable long term growth. ESG factors are naturally aligned with our investment philosophy and time horizon - long-term investments are more likely to be affected by ESG factors. . 

It is important to define integration appropriately with respect to the investment process. Baillie Gifford doesn't require systematic and explicit inclusion of predetermined criteria across different investment strategies, instead focusing on bottom up investment analysis to identify sustainable long term growth opportunities. ESG factors are incorporated where relevant to the sector, geography or company. For some companies, there may be highly material ESG issues which merit extensive additional research.

Working with the investment teams the Governance and Sustainability Team are responsible for researching and engaging with the companies we hold on ESG factors. The team sits alongside the investment teams and produces company, sectorial and thematic research for the investment floor.

We also have four strategies which incorporate screening for all clients who are invested. These strategies are to cater to clients who require additional certainty on ESG exclusions, such as an assurance that the fund will not own stocks in a certain sector. Where screening applies, data from an external research provider is used to screen companies' performance relative to various ESG factors.

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

Incorporation through integration applies to all Baillie Gifford strategies. Screening is used as an overlay to the integration approach in a small number of strategies. 


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

Screened strategies are driven by both client specific restrictions on segregated mandates and fund level restrictions on a number of internally managed funds. Client specific restrictions are driven from client requirements and include provisions in their investment mandate that preclude us from investing in certain sectors due to social or ethical considerations including alcohol, armaments, gambling, adult content and tobacco.

We generally do not exclude on the basis of industry, but instead incorporate material issues into the investment research and analysis. We are ultimately looking for sustainable long-term sustainable growth and therefore these issues do matter both from a positive and negative perspective.

There are a number of investment strategies that run an ethical pooled vehicle with pre-determined screens alongside the primary investment strategy. Screens applied to these strategies include norms based screens and revenue based business activity screens.

When screening applies, data from an external research provider is used to screen companies’ performance relative to various ESG factors

Screened by

Description

UN Global Compact Principles are used in the screening criteria of a number of our screened strategies. 

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

Screening criteria determined by our clients is based on ever-evolving ESG norms and expectations. As such they are involved in any decision to review and change the criteria.

For screened portfolios, any changes are communicated through updates to the prospectus and relevant documentation which is provided to the clients.  


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]

All investors at Baillie Gifford look to identify and invest in long term, sustainable growth companies. Governance and Sustainability team is a key element in the long term performance of a company and as such all investors consider this as part of their investment analysis. Where an environmental and/or social issue is of material relevance to the long term performance of a company, risks and opportunities in this area will be assessed. The Governance and Sustainability team works with the Investment teams to identify companies/sectors/issues that pose higher ESG risks and provide greater ESG opportunities. This then prioritises the work that the Governance and Sustainability team produces for the investors.


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.

          ESG information or analysis is incorporated when relevant. All Governance and Sustainability Team reports incorporate ESG information systematically.
        

09.6. Additional information. [Optional]

Governance is considered prior to every investment decision.

Because the investment strategies have different approaches to how they use ESG data we have made the active decision not to have a standardised approach across all teams. There is a significant risk that it would generate superficial research and a box-ticking approach that wouldn't add to the quality of the investment research. We feel this is a fundamental difference in our approach to ESG at Baillie Gifford and highlights how seriously we think about governance and the long term sustainability of the companies we invest in on behalf of our clients.

We take the approach we do because it is right for our organisation and our clients. The long term growth and sustainability of the companies we invest in is critical to performance, portfolio turnover numbers and ensuring we provide our clients with the service we've agreed to.


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


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