Sustainable, Responsible &/or ESG Policy:
Fixed Limits on revenue exposure:
Adult entertainment/Animal welfare/Tobacco manufacture/Genetic engineering/Gambling - zero tolerance
Alcohol/Defence & Weapons/Nuclear power - 5% revenue threshold
Extended Suitability Assessment:
We ensure businesses meet a higher suitability hurdle for inclusion in an “Ethical” or “Responsible” badged fund. Companies can score highly on ESG factors but we may not feel they are in the spirit of an “Ethical” or “Responsible” fund. MSCI ESG research is used as a simple check and balance on our assessments. In smaller companies 3rd party coverage is patchy but can serve as a useful tool for monitoring ESG Controversies or challenging internal assessments.
Sustainable, Responsible &/or ESG Process:
Process
Unicorn’s disciplined investment process seeks to identify the risks associated with any potential investment and identify the factors that may impact long-term returns. The assessment of ESG factors is integral to this framework and helps to provide a holistic understanding of a business.
Our integrated approach to ESG, places responsibility for ESG analysis onto Unicorn’s investment team. The application of and adherence to the policy is overseen by the firm’s ESG Officer and ESG Analyst who report to Unicorn’s ESG Committee, however, it is crucial to note that the ESG credentials are not seen as separate from the “investment case”.
If an investee company changes to be considered outside the firm’s ESG philosophy, the relevant Investment Manager will be expected to disinvest, and will aim to sell that holding within 90 days of being made aware of the information.
The practice of evaluating a company’s ESG credentials is highly subjective and is also not static, but rather evolves through time. The simplest way to understand UAMs ESG approach across funds is as two distinct activities: Evaluate & Engage.
This process is then enhanced with additional criteria for specific Responsible, Ethical or Impact strategies and for segregated mandates where required.
1. Evaluate
As part of the detailed investment appraisal, ESG factors are considered for all potential investments prior to an introduction to any portfolio. This review aims to prohibit investment in any company which is deemed to have inadequate considerations towards long term sustainability. Further examination more specifically regarding a company’s harmful or detrimental characteristics both within a sector context and more broadly is then undertaken This offers a more holistic mapping of material issues, enhancing decision-making from the outset. Examples include:
- Operational Environmental and Ecosystem Damage
- Negative Social Impact
- Corruption
The review covers the following areas:
- ESG controversies or areas of strength/weakness
- Environmental policies and considerations
- Sustainability policies
- Health and safety policies
- Social value policies
- Human rights policies
- Corporate governance policies and management behaviour
Each of the above areas are reviewed and the integration of those policies into tangible KPIs is sought.
Any issues are discussed with the company management teams. Companies are also encouraged to improve disclosure and reporting if appropriate.
The identification of any significant controversies, or evidence of poor ESG practices, will take precedence over other financial and investment considerations and will be scored a “Fail”, which will result in the exclusion of that potential investment from any of Unicorn’s Funds.
2. Engage
Engagement is a key component of our investment process and ongoing investment appraisal. We hold regular, typically biannual, meetings with investee company management teams in order to discuss their strategic, operational and governance approach. ESG issues and concerns are raised and discussed as a key part of these meetings. These are recorded and the progress against such issues are monitored.
Company site visits are an important part of the investment process and allow the investment team to further scrutinise the ESG practices of investee companies. We aim to visit as many of our investee companies as possible.
Another mechanism of engagement is the exercising of voting rights. Unicorn actively votes on all resolutions and challenges management by voting against recommendations, which are inconsistent with our ESG expectations or disadvantage investors in UAM funds. Full voting records are available on our website.
Engagement is embedded in our investment process. This commitment to Engagement is reinforced by Unicorn’s policy that all investee company voting decisions are taken by Unicorn’s Fund Managers.
We also actively engage with third party ESG rating providers to inform and enhance their understanding of our investee companies especially for smaller companies where ratings agencies can often leverage our in-depth understanding of the company business models.
3. Enhance
Additional criteria are considered for specific Ethical and Responsible products and for segregated mandates where requested. To learn more about the additional company scrutiny for the Unicorn UK Ethical Income Fund and Responsible AIM IHT & ISA portfolio services please refer to their supplementary documents.
Further to the above and In line with both the Ottawa Treaty and the Oslo Convention, Unicorn fully supports the international conventions on cluster munitions and controversial weapons including anti-personnel mines, cluster munitions and chemical & biological weapons. In line with our approach to responsible investment and our commitment to the UN PRI, we will not knowingly invest in any company that derives revenues from, or provides funding for, cluster munitions or controversial weapons. This exclusion parameter is imposed in relation to all of Unicorn’s Funds or Mandates
Resources, Affiliations & Corporate Strategies
ESG considerations are a key priority for Unicorn Asset Management. We are of the view that companies should behave well, exhibit a strong understanding of any negative impacts they may have whilst working to address them, and treat all stakeholders responsibly. Businesses that act with a keen eye on ESG considerations will, in doing so, create value for the long term. Unicorn’s high conviction, stock-picking approach results in levels of portfolio turnover that are typically considerably lower than average. As long term shareholders, we often hold meaningful stakes in the companies in which we choose to invest. Unicorn’s investment team therefore tends to benefit from excellent corporate access to the senior management teams and Boards of our investee companies. This privileged corporate access provides a strong platform for engagement with management, through ongoing and regular dialogue and through active voting. The combination of these key attributes make us particularly well-suited to assessing and engaging with businesses on ESG matters.
Unicorn’s approach to responsible investing is endorsed by its Board of Directors, who act as the Firm's governing body. Consideration toward ESG factors have long formed part of Unicorn’s investment philosophy and these are consistently applied across all Funds and across the business. The ESG process is implemented by the group’s ESG Officer and ESG Analyst and is overseen by the ESG Committee, which meets quarterly, independently of the Portfolio Review Committee and reports to the Board.
The ESG team produces a quarterly ESG report detailing interactions with the management teams of investee companies, a record of Unicorn’s voting history and any other notable ESG engagements. The report and meeting minutes are then circulated to the Board and are discussed, as a formal agenda item, at all scheduled Board Meetings and Portfolio Review Meetings.
Investment research is performed in house (since the inception of Unicorn Asset Management in 2000). This approach demands thorough due diligence of all investments, which fosters an in depth understanding of company business models from an operational, financial and ESG perspective. This is especially important when investing in smaller companies where relevant information is often less readily available. Regular meetings with company management teams form an integral part of the proprietary appraisal of investments.
Specialist providers of ESG services may be utilised to provide independent analysis of Unicorn’s investee companies. We are though mindful of the limitations of third party providers, both in terms of coverage and in terms of detailed understanding of company business models. The quality and breadth of coverage and understanding is particularly inconsistent further down the market cap scale. For these reasons, ESG research produced by third parties is only used as an indicative guide, and to inform, support and challenge our internal ESG assessment of a company. We work proactively with third party providers, often sharing our expertise to help inform and improve their assessment of companies that do not form part of their standard ESG coverage.
Unicorn is a signatory of the United Nations Principles of Responsible Investment (UN PRI) since 2020 and seeks to adhere to the six principles. Unicorn is also a member of the Net Zero Asset Manager Initiative (NZAMI) as of 2022.
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