Sustainable, Responsible &/or ESG Policy:
The Fund seeks to avoid investment in certain areas such as companies which have a material involvement (10% or more) in alcohol and tobacco production, conventional weapon production, gambling, publication of violent or explicit materials, intensive farming, fossil fuel exploration and production and high interest (sub-prime) lending.
The Fund will seek to avoid companies with material operations in oppressive regimes. The Fund has a proprietary means of assessing oppressive regime risk, and operates this on a case by case basis.
It will also seek to avoid companies that have exposure to the manufacture of unconventional weapons where these are defined as nuclear, biological and chemical weapons, land mines and cluster bombs. Finally, the Fund will seek to avoid companies using animals to test cosmetic, beauty or household products. It will invest in pharmaceuticals companies that may conduct animal testing but will encourage the adoption of the 3R principles: refine, reduce, and replace.
Our responsible and sustainable screening captures the quality and strength of a company’s approach to sustainable business. This includes assessing a diverse range of indicators including environment and climate change, conflict minerals, custody of supply in raw materials sourcing (e.g. timber) and pollution etc. By way of example when specifically assessing corporate sustainability as it relates to climate change we would analyse key indicators such as emissions disclosure, how targets are set, whether they are science based and ambitious enough to demonstrate commitment to a low carbon economy and whether the company is providing solutions that support climate resilience, mitigation and / or adaptation.
The Fund favours companies that follow good Business Ethics, Corporate Governance, Employment & Labour practices, Environment and Climate Change Management, Human Rights, and Community Relations and is particularly positive on companies that contribute to Education, Health & Wellbeing, Social Infrastructure and Sustainable Solutions.
Sustainable, Responsible &/or ESG Process:
The fund style is that of long-term value. We look for companies that offer strong sustainable attributes, coupled with value characteristics. Using our proprietary responsible & sustainable process, deploying both negative and positive screens, we look to identify companies that provide solutions that address long-term thematic global issues.
As the Fund aims to identify and invest in companies that create products or solutions to that enable a more sustainable and responsible future, investment idea generation can come from a variety of sources, including our in-house integrated sustainable investment research, which is completed by fund managers, investment analysts and the Responsible Investment team, as well as company meetings, company reviews and third party research.
A significant amount of idea generation is derived from our thought-leading proprietary research on structural challenges such as Natural Capital, Sustainable Cities and Cybersecurity, which is ultimately distilled into Insights and White Paper publications. Thematic research of this nature is a collaborative effort between both the Investment Team and the Responsible Investment Team, with the investment analysts and fund managers undertaking fundamental research at a company level.
Most idea generation, the team will undertake research around the industry and stock’s fundamentals. The research output is documented within a standardised process template, which examines the following areas:
Business model sustainability, source of competitive advantage, risk or opportunities from disruption, assessment of competition landscape and barriers to entry; supply chain analysis, volatility of cost base/inputs and margin stability through cycle; breadth of customer demand and pricing; and other potential macro-economic influences. In terms of financial health of the company, balance sheet analysis examines levels of gearing through cycle; nature of covenants, interest cover; off balance sheet leverage; contingent liabilities; on balance sheet pension scheme liabilities funding; and known asset backing.
Regarding cash flow, we assess the financial model of the business in order to understand issues such as the underlying drivers of cash generation, working capital cycles and capital expenditure requirements, and the conversion percentages of stated profits into actual cash. Analysis of how historic free cash flow has been deployed, i.e. M&A, dividends, buybacks etc. as part of a thorough examination of a company’s willingness and ability to pay dividends.
Finally, in considering a company’s management quality, we consider whether management are focused on driving shareholder value and if they have the skills to deliver future potential. The team will then assess whether the company’s mid to long-term valuation is justified based on their interpretation of the intrinsic value of the stock which arises from interpreting the information gathered in the process articulated above.
Concurrently, the Responsible Investment (RI) team will screen the companies for their responsible and sustainable attributes. All ideas are required to pass our negative and positive screens in order for investment to go ahead. The RI team has final sanction on excluding from investment any proposed idea. The team will then assess whether the company’s mid to long-term valuation is justified based on their interpretation of the intrinsic value of the stock which arises from interpreting the information gathered in the process articulated above.
Research
Our RI team regularly publish expert briefs and opinion pieces, which help to inform our clients and drive idea generation within our investment team. The RI team also produces our flagship EdenTree Insight publications from time to time, which provide a sustainable perspective on some of the biggest challenges facing our world today and how we, as responsible and sustainable investors can be a part of the solution.
Our fund managers also regularly write on a range of industry topics, from macro-economic and geo-political viewpoints through to individual stock ideas and how they are finding opportunities that align with our responsible and sustainable investment approach.
As well as our own in-house research (including special thematic reports) we use a range of sources, including independent data from ISS ESG in respect of Environmental, Social, Governance (ESG) issues, although we do not rely on ISS ratings for our decision-making process.
Resources, Affiliations & Corporate Strategies
EdenTree has a specialist, dedicated RI Team which comprises five people.
- Neville White, Head of RI Policy & Research – Neville is the RI Team Governance lead and is responsible for policy and strategy.
- Rita Wyshelesky, Senior Responsible Investment Analyst – Rita leads on Thematic, Sustainability and Impact supporting the team with screening, engagement and research.
- Carlota Esguevillas, Senior Responsible Investment Analyst – Carlota leads EdenTree’s work on social topics such as human rights, diversity and workforce issues supporting the team with screening, engagement and research.
- Amelia Gaston, Responsible Investment Analyst – Amelia supports the team with screening, engagement and research and is the environment and climate change lead.
- Cordelia Dower-Tylee, Responsible Investment Analyst – Cordelia supports the team in all aspects of responsible investing.
Responsible and sustainable factors are fully integrated into the investment management process, with our Fund Managers and RI Team working side by side to generate ideas, analyse opportunities, create meaningful and diversified portfolios, and undertake ongoing evaluation and engagement.
Our basic ESG risk analysis is provided by ISS-ESG which provides core ESG disclosure data as well as rating each company within an industrial sector peer group across E, S & G pillars; this rating is used solely as a guide as suitability is driven by our in-house screening process.
Our RI team conducts additional research and analysis from publicly available materials including:
- Company literature (annual reports, websites and sustainability reports)
- Industry or trade body publications and websites
- NGO reports and websites e.g. Banktrack
- Government and academic research
- Investor benchmark initiatives
EdenTree has been a proud signatory of the PRI since 2012. For more information on how EdenTree works with the PRI please see our PRI transparency report here and PRI Assessment Report here
Whilst asset managers are able, and often choose, to omit or hide specific sections of the PRI Transparency Report, EdenTree publish the full report for complete transparency. For the PRI Assessment Report, we also publish the full report here. In 2021, EdenTree achieved a 4 star rating for our Investment & Stewardship Policy.
Other signatory partnerships include:
- Principles of Responsible Investing;
- Institutional Investors Group on Climate Change (IIGCC);
- CDP (formerly Carbon Disclosure Project);
- Access to Nutrition Index (ATNI);
- Access to Medicines Index (ATMI);
- Business Benchmark on Farm Animal Welfare (BBFAW);
- Corporate Human Rights Benchmark (CHRB);
- Farm Animal Investment Risk & Return;
- Workforce Disclosure Initiative (WDI);
- Montréal Pledge;
- Paris Pledge;
- LSE Financing a Just Transition Alliance;
- UK Sustainable Investment & Finance Association;
- 30% Club on Diversity;
- Global Impact Investing Network;
- World Benchmarking Alliance;
We believe that these key signatory partnerships signals our commitment to having an active and positive role in our investment community, achieving more than which we can achieve ourselves. Collaborations are critical to achieving this, whilst learning from expert sources allows us to provide more for our clients and supporting initiatives truly helps to gain momentum. We have been a signatory to the UK Stewardship Code since inception (Tier I).
Responsible Investment Panel Review
The Responsible Investment Advisory Panel (“Panel”) meet three times each year to review the Responsible & Sustainable Fund portfolios, the recent investment decisions and to discuss the latest responsible and sustainable research and trends. The purpose of the Panel is to:
- Help to ensure that the EdenTree Responsible & Sustainable Range of Funds meet the stated aims and objectives.
- Provide advice in the formulation of policy in the light of changing social and environmental issues.
The Panel will provide advice to the RI team in a number of ways:
- Advising on emerging issues or topics relevant to RI criteria.
- Provide advice and guidance on individual companies or sectors, and engagement work.
The Panel is made up of a number of industry experts, including:
- The Right Reverend Dr Nigel Peyton – Panel Chair
- Mike Barry – Former Director of Sustainable Business
- Julie McDowell – Independent Consultant
- Julian Parrott – Client Member, Ethical Futures
- Bill Seddon – Former CEO CFB Methodist Church
- Sue Round – Chair of EdenTree Investment Management ACD Board and former CEO
- Annette Ferguson – Independent Consultant (former Head of Sustainable Business at Vodafone)
- Paul Simpson OBE – Strategic Advisor (former CEO of CDP)
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