First of all, strict evaluation of the manager`s ethical standards.
This item is self-explanatory. It may be difficult to gauge, but as time goes by, the biography of the professional in question speaks for itself.
It is ethics that speaks louder in the numerous uncommon moments in our market. Ethics can prevent the mistakes that produced the great scandals of the corporate and financial world. In the absence of adequate control mechanisms (checks and balances), ethics can safeguard institutions and minimize the occurrence of irreparable situations. And it continues to be essential even in the face of the best control mechanism ever invented. After all, behind such mechanisms there are people and, inevitably, their human nature.
Corporate governance (G) has always been part of our investment process since the beginning of our fund (2005). A few years ago it made total sense to incorporate E&S factors into the investment process as well. It is a natural evolution for these issues that are also tied to governance.
Since the beginning of our strategy we applied a negative screening in one of our filters to reach our investment universe.
One of our filters currently eliminates some companies. Here we do not even consider sectors we regard as risky, such as aviation, a segment subject to severe competition and highly regulated. We do not invest in the tobacco, asbestos, or weapons segments, since we have no wish to promote any of these businesses.
Then we have our corporate governance filter, one of JBI’s unique features. This is a relatively simple process but consists of a meticulous evaluation of certain governance criteria, such as: related parties, true board of director independence, and the company’s record at the CVM (Brazilian Securities Commission). At the end of this analysis, we then answer the question, “do we want to be partners of this company or not?” Here we benefit greatly from the experience of the JBI team, who has worked in investment banks, regulatory bodies, and other companies. We were at the CVM when corporate governance was at its most vigorous: the redrafting of Brazilian Corporation Legislation and the foundation of the Bovespa (São Paulo Stock Exchange) New Market. This
invaluable JBI asset, a living memory that enables us to interpret the true agenda of controlling shareholders and directors, cannot be replicated elsewhere in the fund management market.
We have also won recognition for our emphasis on corporate governance; and the use of a a governance filter to define our universe of investable companies, continues to differentiate ourselves from other so-called governance investors. We believe that the adoption of adequate corporate governance practices is a tool for value creation in the long term. Our view is that equivalent companies, which have attractive businesses and competent managers, will be differentiated according to the quality and adequacy of their governance practices. It is important to clarify that governance measures, no matter how superior they may be, will not turn a company with weak economic fundamentals into a strong value generator. However, we do believe that between two companies that are equivalent in terms of the nature of their businesses and their management, the one that adopts more adequate governance practices will tend to perform better in the long term and consequently to generate a greater return for its shareholders.
And finally we now apply the E&S factors integrating to the investment process. We do not eliminate any industry and / or companies. Only seek to assess risks and opportunities in relation to environmental and social factors.
We have chosen six environmental factors to monitor: i) water and energy use; ii) carbon emissions; iii) waste / hazardous materials disposal and treatment; iv) environmental policies and certificates; v) key raw materials usage; and vi) appropriate handling processes.
On social issues we are analysing: i) health and safety procedures; ii) social engagement; iii) disclosure of employee-related information; and iv) working conditions.
The investment philosophy is 100% value-oriented with special emphasis on capital preservation. The Manager runs a concentrated portfolio strategy of usually 12 to 20 stocks taking the view as a long-term minority investor. The Manager seeks target returns of 15% p.a. (net of fees) in a minimum five-year window. To achieve this goal, JBI’s team looks for profitable businesses at rea-sonable prices. Considering the over 450 stocks listed in the Brazilian Stock Ex-change (BM&F Bovespa), JBI applies 3 filters to generate the Fund’s Investment Universe, composed of approximately 80-100 stocks.
Why does JBI incorporate environmental and social factors into investment process?
In line with what we think and practice.
Purpose of reducing the medium / long term risk of the portfolio.
Continuity to our Governance analysis, which has always been part of our investment philosophy.
A combination of doing good for society and not doing harm to investment returns.
ESG factors are material to developing a complete understanding of risk and opportunity which is needed to succeed in achieving long-term, sustainable investment returns.
Cooperation with companies in our universe to engage in these causes.