Sustainable, Responsible &/or ESG Policy:
The method we use to screen investments includes both a process driven quantitative and values-based qualitative approach (more of which is covered below). It is important to note that quantitative ESG data serves the process but does not drive it. Recent examples where a company has received a high third party ESG score, but has subsequently been affected by ESG flags, shows the importance of our internal research to avoid these pitfalls.
For our model portfolios, we have implemented a stringent negative and positive screen to meet the vast majority of investor's concerns (where ethics are more specific, a bespoke portfolio may be required). We pride ourselves on ensuring that each portfolio is constructed to be as 'ethical' as possible within the investment constraints of each portfolio and platform. Whilst all funds have a specific label, whether that's Responsible, ESG or Impact, we look beyond this to understand each funds approach. This includes conducting ongoing screening of funds where we look 'under the bonnet' at the underlying holdings to ensure they still align with the screen in place. We regularly communicate with fund managers for justifications on holdings, before investing into new funds, and during the time they are held. At times we may exit holdings if we feel the justification from a fund manager is not sufficient, or a company conducts activity that is against the negative screen in place. Funds are preferred if they demonstrate that a rigorous screen is in place, our ongoing due diligence ensures this is monitored. On top of the negative screen, we favour funds which also have a positive investment focus. Many of the fund houses who appear in our model portfolios will have explicit policies on issues such as climate change, greenhouse gas emissions, and responsible ownership/stewardship.
Negative Screen:
Adult Entertainment, Aggressive Tax Practices, Alcohol, Armaments, Fossil Fuels, Gambling, Human rights abuse, Illegal deforestation, Intensive farming, Nuclear, Poor environmental management, Tobacco
Positive Screen:
Education & Learning, Environmental Efficiency, Healthcare, Sustainable Infrastructure, Microfinance, Public Transport, Renewable Energy, Resource Management, Social & Medical Property, Sustainable forestry, Water & Sanitation.
Sustainable, Responsible &/or ESG Process:
The screening policy for our model portfolios clearly lays out the areas of avoidance and inclusion. We follow a traditional negative screen, which we have built on to include other topical issues such as Nuclear and Fossil Fuels. On top of this, our screening policy lays out a number of positive investment themes we tilt towards, focusing on solutions to environmental and social issues.
Our screening process has two parts: a quantitative screen and a more values based qualitative screen.
The quantitative ESG screen will examine the investment from an ESG perspective, with the data provided by third party screeners (currently MSCI). We are able to gain data on a number of ESG factors, including the investments exposure to a number of positive investment themes, which have obvious similarities with the United Nation’s Sustainable Development Goals. The research will also flag business involvement that may be contrary to any negative screen we have in place. Whilst the quantitative output we receive is valuable, it does not drive our investment decision, and is by no means definitive.
The bulk of our research into an investment is through our in-house qualitative screen. This ensures we truly understand the investment and motives around it, and draws on a wide range of sources. This includes meeting fund managers and analysts and challenging them on their investment philosophy so we can truly understand how they implement their own sustainable strategy. The key for us is screening each collective, to ensure the underlying companies adhere to our own screening policy. We challenge holdings when we feel there are questions on their merits, and will sell out of a fund if not convinced. It is important to note, we will not compromise on ethics for performance, nor will we compromise on performance for ethics. Where we have doubts, we will always err on the side of caution.
Resources, Affiliations & Corporate Strategies
Having run personal ethical portfolios since 2002, we have a vast understanding of the market place. As a result, the majority of our research is conducted in house through the portfolio managers and wider team. This ensures investment decisions and ethical considerations go hand in hand.
We are able to gain access to third party data from MSCI, which alone will not be definitive, whilst also relying on reports and research from industry bodies and charities.
Through the group, we have access to a number of analysts, including those in the Far East who are increasingly considering ESG factors in their own process. We are a member of the UK Sustainable Investment and Finance Association.
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