Sustainable, Responsible &/or ESG Policy:
Analysing ESG issues is an important part of the analysis of a company’s business fundamentals. Environmental factors consider a company’s impact on the environment, social factors consider the way businesses treat and value people, and governance factors focus on corporate policies and how companies are governed. We believe companies with sound governance practices and strong stakeholder relations, and that manage relevant environmental and social risks responsibly, have a greater propensity to create long-term value for shareholders.
The Fund aims to achieve above median long-term performance versus unrestricted UK equity peers, while adhering to its ESG criteria and also generating a good level of income.
The Fund’s investment objective is to provide income with prospects for capital growth by investing primarily in a portfolio of UK equities. The Fund will seek to invest in companies that are responsibly run, giving due consideration to ESG issues. The Fund will avoid investing in companies that the portfolio manager considers to potentially have a negative impact on the development of a sustainable global economy.
The Fund is best thought of as a low carbon, equity income portfolio with strong governance and sustainability standards.
Portfolio Manager Andrew Jones is the lead manager of the strategy and Portfolio Manager David Smith, CFA, assists Andrew. They are both supported by the wider Janus Henderson Global Equity Income Team (the ‘team’), and the firm’s ESG Investment Team. The ESG Investment Team is an in-house specialised group focused on ESG data analysis and research, governance, ESG company and thematic engagement, proxy voting and advisory services that serves as a resource for all our investment desks. The team’s mission is to promote ESG integration across the business. They play a leading role internally in working with investment desks to enhance their ESG integration processes and externally leading our active participation in numerous ESG initiatives.
As mentioned earlier, the Fund is actively managed with reference to the FTSE All Share Index, which is broadly representative of the companies in which it may invest, as this can provide a useful comparator for assessing the Fund's performance. The investment manager has discretion to choose investments for the Fund with weightings different to the index or not in the index. As an additional means of assessing the performance of the Fund, the IA UK Equity Income sector average, which is based on a peer group of broadly similar funds, may also provide a useful comparator.
Key differentiators
- The experience and strong track records of the portfolio manager in applying his investment approach.
- A flexible and pragmatic investment process, capable of achieving outperformance in a variety of market conditions. The portfolio manager’s bottom-up stock selection process combines fundamental analysis with a strong valuation discipline. This enables them to identify companies with good long-term prospects trading at reasonable valuations.
- A long-term approach to investment. Stocks undergo a rigorous selection process and are typically held for at least five years.
- A clear ESG proposition offering a high level of ESG integrity for clients requiring a screened approach to investment, avoiding companies involved in such areas as gambling, alcohol production, the military, nuclear energy, and tobacco.
ESG philosophy
The Fund seeks a responsible approach to investing in UK companies by incorporating ESG factors in investment decisions and avoiding companies that the investment manager considers to be involved in business activities and behaviours that may be environmentally and/or socially harmful.
Over the long-term, the investment team believes there are two key factors that drive stock prices:
- The returns a company generates.
- The valuation given to those returns.
Stocks will go up or down if either the company’s returns are better or worse than the market anticipates, or the valuation of those returns changes. Short-term market inefficiencies allow the manager to exploit opportunities where the long-term returns or value of a company are misjudged.
Responsible investment
In 2006, Janus Henderson became a founding signatory of the United Nations Principles for Responsible Investment (UN PRI), publicly demonstrating its commitment to including environmental, social and governance factors in investment decision making. The UN PRI defines responsible investment as
‘a strategy and practice to incorporate ESG factors in investment decisions and active ownership.’
This definition is reflected in the Fund’s responsible investing approach with an ethos of strong avoidance criteria and a focus on integrating environmental, social and governance factors. The portfolio manager’s investment approach is not static; as the science and knowledge of environmental, social and governance issues evolves, the manager will look to adapt and refine the approach.
Sustainable, Responsible &/or ESG Process:
Investment screens
The first stage is screening in order to ensure that the securities are eligible for purchase. The Fund has clear avoidance criteria that it must adhere to. If a company earns more than 10% of its revenue from one of the areas in the table below it is not eligible for inclusion in the portfolio.
Investible universe
To minimise exposure to business activities and behaviours that may be environmentally and/or socially harmful, the strategy seeks to avoid businesses that have products or operations directly associated with the certain criteria, subject to de minimis limits.
De minimis limits: Where possible we will seek to achieve zero exposure in respect of the negative criteria. However, there may be instances when we will apply a de minimis limit. A de minimis limit is a threshold above which investment will not be made and relates to the scope of a company’s business activity; the limit may be quantitative (eg, expressed as a percentage of a company’s revenues), or it may involve a more qualitative assessment. De minimis limits exist because sometimes avoiding an industry entirely may not be feasible given the complex nature of business operations.
In such instances we will invest in a company only if we are satisfied that the ‘avoided’ activity forms a small part of the company’s business, and when our research shows that the company manages the activity in line with best practice.
When the activity relates to a company’s revenues, we will use a 10% threshold. When the activity relates to a company’s operations, we will seek to gain comfort that the company is taking action to improve its performance or is managing it in an exemplary fashion. Any company with a persistent record of misconduct, where such activity relates to company operations, will be excluded unless there is clear evidence of significant progress.
We seek to avoid businesses that have products or operations directly associated with the following criteria:
- Alcohol: We avoid companies involved in the production and sale of alcoholic drinks.
- Animal testing: We avoid companies that manufacture vitamins, cosmetics, soaps or toiletries unless they make it clear that their products and ingredients are not animal tested. We allow animal testing for medical purposes only where the company employs best practices in accordance with the ‘3Rs’ policy of refinement, reduction and replacement.
- Armaments: We avoid companies involved in the direct production or sale of weapons. We will not invest in companies involved in the direct production of land mines, cluster munitions, biological/chemical weapons, and nuclear weapons.
- Chemicals of concern: chemicals, subject to bans or severe restrictions in major markets around the world. This includes micro beads, persistent organic pollutants, and the manufacture of any other substances banned or restricted under international conventions. Ozone-depleting substances may be allowed in cases where there is a mitigating positive environmental or social impact and the company’s strategy involves a transition away from these substances.
- Contentious industries: We avoid companies that generate high carbon emissions or exploit non-renewable resources, either directly or in their supply chain, unless the company can demonstrate an outstandingly positive response towards environmental and social concerns. Our definition of contentious industries includes cement, mining and timber.
- Fossil fuel extraction & refining: We avoid companies engaged in the extraction and refining of coal, oil and gas.
- Fossil fuel power generation: We avoid companies engaged in fossil fuel power generation; however, investment in companies generating power from natural gas may be allowed in cases where the company’s strategy involves a transition to renewable energy power generation.
- Fur: We avoid companies involved in the sale or manufacture of animal fur products.
- Gambling: We avoid companies with activities related to gambling.
- Genetic engineering: We avoid companies involved in the deliberate release of genetically modified organisms (eg, animals or plants). Investment in companies where genetic technologies are used for medical or industrial applications may be acceptable providing high environmental and social standards can be demonstrated. Companies that use or sell products that make use of such technologies may be acceptable providing genetically modified organism (GMO) ingredients are clearly labelled.
- Nuclear power: We avoid companies that are involved in the uranium fuel cycle, treat radioactive waste, or supply specialist nuclear related equipment or services for constructing or running nuclear plant or facilities.
- Pornography: We avoid companies that are involved in producing or distributing pornography and adult entertainment materials or services.
- Tobacco: We avoid companies that engage in activities related to the production and sale of tobacco products.
In addition to the avoidance criteria, all holdings in the strategy are compliant with the UN Global Compact and the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises. The UN Global Compact’s ten principles cover human rights, the International Labour Organisation’s declaration on workers’ rights, corruption, and environmental pollution, while the OECD guidelines cover employment, bribery and competition. More detail can be found in the strategy’s Investment Principles document on the website www.janushenderson.com.
An investee company must pass the Vigeo EIRIS screen or be approved by the ESG Oversight Committee to be eligible for the strategy.
Please note that the negative screening is primarily focused on the products and services of a business; ESG analysis, with regard to the operations of a business, is performed in conjunction with the fundamental analysis.
Portfolio construction is driven by stock selection. The portfolio will comprise 60-75 equity investments. Every investment is selected on its own fundamental stock attributes but must contribute to overall portfolio fit and risk diversification.
As a result of the Fund’s ESG avoidance criteria, a number of large sectors are excluded in their entirety, including energy, mining, and a number of consumer staples. Wherever possible the manager will seek to construct the portfolio with similar factor exposure, while having superior ESG profiles. For example, owning industrials will provide cyclical exposure which should perform well when mining is performing well, and owning utilities should provide downside support relative to a falling market in a similar way to alcohol/tobacco stocks. The one area that cannot be replicated in this way is the energy sector.
ESG integration
We believe companies with sound governance practices and strong stakeholder relations that manage relevant environmental and social risks responsibly have a greater propensity to create long-term value for shareholders. Key ESG issues considered as part of the investment process include corporate governance, human capital and diversity, climate change, controversies, disclosure, transparency, and business ethics.
Sustainalytics, an external ESG rating provider, is used to provide ESG rankings at both the portfolio and individual company level. These ratings are supplemented with Janus Henderson research and analysis as well as engagements with companies when appropriate. It is expected that the strategy’s ESG risk, as measured by Sustainalytics will be superior to its benchmark, the FTSE All-Share index.
To make informed investment decisions, a wide range of specialist tools and information are made available to the portfolio manager and broader investment teams. The firm subscribes and uses a number of specialist ESG research and data providers including: Sustainalytics, Vigeo EIRIS, MSCI, ISS, Bloomberg, RepRisk, and Institutional Voting Information Services (IVIS). These providers are selected and monitored by the central Janus Henderson ESG Investments Team.
Company engagement and voting
Company engagement forms an important part of the investment process. Meetings incorporate a wide range of topics including environmental, social and governance issues where relevant. We take an active approach to communicating our views to companies and seeking improvements in performance where necessary, including appropriate standards of corporate responsibility.
Our analysis of the portfolio against key ESG performance indicators helps us identify topics for engagement, together with the controversies, scientific advances and actions taken by companies. These topics for engagement are not fixed and are subject to change depending on the activities of the company and their materiality.
Janus Henderson’s Proxy Voting Policy and Procedures document, which can be found on www.janushenderson.com, sets out the firm’s proxy voting policy.
Ultimate voting authority rests with the portfolio manager, who is responsible for ensuring that votes are exercised in the best interests of clients, with ESG factors an important consideration where relevant. The portfolio manager is supported by the in-house Governance and Stewardship Team, who work closely with investment teams to help analyse voting-related issues. With regard to voting and company engagement, the portfolio manager considers certain core principles such as disclosure, transparency, board composition, shareholder rights, audit and internal controls, and remuneration. A key element of the approach to proxy voting is to support these principles and practices and foster the long-term interests of shareholders.
Given that the Fund’s responsible investment process incorporates ESG factors in investment decisions, there will be relatively few shareholder proposals on ESG issues for the companies held in the Fund. We aim to support shareholder proposals on ESG factors for portfolio holdings following our approach to voting and engagement outlined within this document.
The Fund’s Quarterly Voting and Engagement Report can be found on www.janushenderson.com.
Resources, Affiliations & Corporate Strategies
The following investment individuals are dedicated to ESG at Janus Henderson:
- Michelle Dunstan- Chief Responsibility Officer
- Adrienn Sarandi - Head of ESG Strategy and Development
- Antony Marsden - Head of Governance & Stewardship
- Bhaskar Sastry, CFA - ESG Content Manager
- Blake Bennett, PhD - Analyst, Governance & Stewardship
- Charles Devereux, CFA - ESG Corporate Research Analyst
- Charlotte Nisbet - ESG Corporate Research Analyst
- Dan Raghoonundon - ESG Corporate Research Analyst, Lead
- Harry Schmidt - ESG Implementation Director
- Jesse Verheijen - ESG Data Analyst
- Jigar Pipalia - Portfolio Analyst
- Natasha Page - Director of Fixed Income ESG
- Alice Branagan- ESG Data Analyst
- Olivia Gull - Analyst, Governance & Stewardship
- Olivia Jones - Junior ESG Research Analyst
- Phoebe Lei- ESG Corporate Research Analyst
- Ruchi Biyani - Analyst, Governance & Stewardship
- Xiaoyi Luo Tedjani, FRM - ESG Corporate Research Analyst
Note: This is an evolving group and will be built out with additional professionals.
ESG investment resources
We have a specialist ESG Investment Team with three pillars – Governance & Stewardship, ESG Investment Research and ESG Strategy & Development. The team is headed up by Chief Responsibility Officer Michelle Dunstan and its mission is to promote ESG integration across Janus Henderson and serve as a resource for all investment teams. The three pillars are structured to support our investment teams with ESG integration, stewardship and ESG intelligence for portfolio construction, product development, thought leadership, and data and technology.
The Governance & Stewardship Team evolves the firm’s engagement and voting policy and process, and lead on collaborative and thematic engagements. The ESG Investment Research Team supports the investment desks with ESG research and insights. The ESG Strategy and Development Team focuses on ESG data, product design and thought leadership generation.
In 2022, we completed the second phase of our hiring. The ESG Strategy & Development team was expanded with the addition of new members in Denver and Edinburgh who are working with the investment teams on ESG integration, with a focus on ESG data and tools and product development
ESG Investment Team
We have a specialist ESG Investment Team with three pillars – Governance & Stewardship, ESG Investment Research and ESG Strategy & Development. The team is headed up by our Chief Responsibility Officer and its mission is to promote ESG integration across Janus Henderson and serve as a resource for all investment teams. The three pillars are structured to support our
investment teams with ESG integration, stewardship and ESG intelligence for portfolio construction, product development, thought leadership, and data and technology.
The Governance & Stewardship Team evolves the firm’s engagement and voting policy and process, and lead on collaborative and thematic engagements. The ESG Investment Research Team supports the investment desks with ESG research and insights. The ESG Strategy and Development Team focuses on ESG data, product design and thought leadership generation.
ESG Product Strategy
Our ESG Product Strategy Team provides a centralised function to support all business functions with respect to ESG. This team partners with the investment teams on content creation, client enquiries, and aligning our ESG product development and investment capabilities.
Additionally, our Head of Client Experience has been partnering with the ESG teams to develop detailed ESG reporting that satisfies the needs of our clients.
ESG governance
We believe that strong governance is foundational to good business and all aspects of ESG. To reflect our commitment to Corporate Responsibility and Responsible Investing, we appointed a Chief Responsibility Officer to oversee all elements of our responsible investment strategy. To emphasise the importance of our responsibility efforts and to ensure they are embedded across our entire firm, the Chief Responsibility Officer will report directly to the CEO and be a member of the Strategic Leadership Team. Michelle Dunstan, an experienced leader in ESG strategy and investing assumed this position in January 2023 and will guide and shape our ESG efforts and governance structure in 2023 and beyond.
In support of our strategic goals, we have created individual initiatives to ensure that ESG is appropriately reflected in our client experience, that our Funds and mandates respect emerging regulation pertaining to ESG, and that the ESG operating model within Investments continues to evolve.
Additionally, we have integrated the management of ESG risks into management committees and established a dedicated ESG Oversight Committee responsible for ensuring that the Investments framework to manage ESG-related risks is adequate and effective.
ESG research, data and ratings
We subscribe to a broad range of external ESG information providers and make this information available directly to the investment teams.
Janus Henderson subscribes to a wide range of specialist ESG research providers and makes this information available directly to the investment teams. However, we do not base our investment decisions solely on third-party ESG data. Rather, we augment our proprietary ESG analysis and ESG ratings with data from third parties.
We use a wide range of specialist ESG research, data and tools from providers, including:
- Sustainalytics
- MSCI
- Vigeo EIRIS
- ISS Climate Impact
- Institutional Voting Information Service (IVIS)
- RepRisk
- ISS Quality Score
- ISS Proxy Voting Research
- FTSE Russell Beyond Ratings
- TPI, CDP, IFRS Sustainability Alliance* (formerly SASB, CBI, SBTi
- GRESB
- Other specialist broker research
*Upon the Value Reporting Foundation’s consolidation into the IFRS Foundation, the IFRS Foundation’s International Sustainability Standards Board (ISSB) assumed responsibility for the SASB Standards. The ISSB has committed to build on the industry-based SASB Standards and leverage SASB’s industry-based approach to standards development. The ISSB encourages preparers and investors to continue to use SASB Standards.
As our strategic ESG data provider, MSCI provides various climate-related metrics and tools to enable us to assess climate-related risks and opportunities across portfolios, including various carbon metrics, climate scenario analysis, physical and transition risks assessments, and Implied Temperature Rise. We report on these climate metrics in our quarterly ESG reports.
ESG affiliations, memberships, initiatives and certifications
In addition to being a founding signatory of the UNPRI, as part of our commitment to responsible investment, Janus Henderson is involved in a wide range of ESG related initiatives and working groups as a member, supporter or in an advisory capacity.
Our participation in industry working groups along with our sharing of insights and knowledge of ESG through our published materials reflects our firm as active proponents of sustainable investing.
In 2022, we generated approximately 40 thought leadership and educational pieces on ESG topics. As part of our Knowledge Shared approach, we share the views of our investment teams as articles, videos, and white papers on our website. We publicly support standard setters and industry groups listed above who work with governments to support greater sustainability within investments. Where possible, we contribute to ESG policy and regulatory discussions through our response to consultations.
For the full list of our ESG Affiliations, Memberships and Certification details please refer to the Affiliations section in our website.
https://www.janushenderson.com/en-gb/investor/about-us/esg-environmental-social-governance/esg-corporate/
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