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Prosperity Capital Management

PRI reporting framework 2020

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (A) Implementation: Screening

(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

With the exception of cluster munitions and relevant sanctioned entities, Prosperity Capital Management does not seek to exclude any potential investment. The core belief of Prosperity is that positive results for environmental, social and governance work comes from active involvement in companies rather than from exclusion of certain investments.

Broadly speaking, we seek to invest into fundamentally sound and well-managed businesses. In this way, those companies that have poor corporate governance practices tend to be unattractive.

As a value investor with an active and pro-active investment approach, it should however be noted that such decisions are made on case-by-case basis with many influencing factors, not least the price and the ability to engage with the owners, management, shareholders and other stakeholders to promote positive changes in a business.

Also, we have formalised the incorporation of other non-financial data in our investment process, including the monitoring of carbon-related matters and the reporting thereof. Where relevant, we will also actively seek to engage with companies on these issues.

At the same time, generally, PCM does not include in its investment universe companies with poor corporate governance, environmental and social records.

Screened by

Description

Prosperity believes that the quality of management is very variable in our investment universe and that this qualitative metric has a very significant impact on shareholder value. This is true anywhere, but it is our view that the variance and impact of management quality is greater in Russia than in many other markets. As a result, Prosperity places a considerable emphasis and importance on meetings with company’s management and core shareholders throughout the investment process in order to evaluate their quality.

The rapid rate of change in Russia also necessitates constant monitoring, as the market for corporate control is quite active and both core shareholders and management may change. These changes may sometimes work to dramatically increase the efficiency of a company and its shareholder value. Our long-standing participation in the market allows us to often form a well-researched view of incoming shareholders and management based on their respective previous track records. It also gives us the opportunity to efficiently reach the management to discuss strategy and plans for operational improvements.

 

Screened by

          Where appropriate, Prosperity employs a proprietary benchmarking analysis against global industry peers to ascertain global industry best practices as part of our investment process.
        

Description

Where appropriate, Prosperity employs a proprietary benchmarking analysis against global industry peers to ascertain global industry best practices to seek to identify areas of strength and of opportunity for our portfolio companies. Where we see opportunities for improvement for our portfolio companies, we will actively engage with them to demonstrate and discuss those, promoting positive changes and seeking to add value over time.

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

Prosperity's screening criteria are an integrated part of the investment process. As such, they are reviewed and evolved on an ongoing basis, as we continue to learn from our decisions and to seek to ever-enhance our processes. At the very least, a formal review is conducted once per annum.

Where significant changes are made to our screening criteria, which is not anticipated, Prosperity would communicate these to the relevant stakeholders, with reverence and consideration to the due process and our general communication approach.


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.

          Prosperity's investment team, comprised of sector-specialist analysts, works in a collaborative fashion before seeking to reach a consensus agreement on a company.
        

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.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

Prosperity believes that accessing high-quality management is extremely important in achieving investment success in Russia and the FSU. There are substantial opportunities in these dynamic and quickly evolving markets and it is Prosperity’s view that strong and capable management teams are most able to benefit from these characteristics, whilst also minimising the risk of corporate governance malfeasance and breaches.

As such, Prosperity places considerable emphasis and importance on meetings with the company’s management, executives, majority shareholders and other stakeholders throughout the investment consideration, inception, monitoring and exit process.

Triangulation (i.e. speaking with company’s external stakeholders, such as suppliers, distributors, competitors, etc.) is considered an important part of the process, allowing Prosperity – in conjunction with our considerable experience of investing in Russia and the FSU since 1996 and our long historical knowledge of many companies – to build strong convictions in our views and to take significantly contrarian stances to the general market and sell-side analysts with considered and monitored comfort.

Members of Prosperity’s investment team conduct over 500 company meetings and engagements each year. It is considered that on average:

65% of such meetings take place at Prosperity’s or the respective company’s offices
20% “on-site”
10% at conferences
5% by tele/videophone.

Access to senior corporate personnel and management is generally considered to be very good in Russia and the Former Soviet Union and provides us with the opportunity to develop a robust understanding of the company and its practices, in conjunction with other investment research work.


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.

          Prosperity's investment team, comprised of sector-specialist analysts, works in a collaborative fashion before seeking to reach a consensus agreement on a company.
        

06.2. If breaches of fund screening criteria are identified, describe the process followed to correct those breaches.

The Group Compliance Officer conducts monitoring exercises in order to ascertain that the Company adheres to rules, regulation and internal policies. If a breach is discovered in the investment process, then this would immediately be escalated to the Risk Committee. The Committee will discuss the matter with all relevant stakeholders and ensure that the breach is rectified, whilst also considering additional enhancements to Prosperity's processes.

06.3. Additional information. [Optional]


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