Redwheel Sustainable Emerging Markets Fund

Sustainable, Responsible &/or ESG Policy:

The Sustainable Emerging Markets Equity Strategy seeks to invest in companies that provide solutions to sustainable development challenges, in support of the UN SDGs. The Strategy’s opportunity set spans the breadth of emerging economies and the larger, more liquid economies within frontier markets. The Team believes that emerging and frontier markets offer a unique opportunity to invest not only in traditional channels of development, but also evolving models and technologies such as digitisation and electronic transactions, telehealth, and smart infrastructure.

Companies that contribute to the UN SDGs play a crucial role in accelerating economies, which can translate into robust financial tailwinds. The companies in their investment universe tend to be growing their markets as they expand access to essential products and services. Companies that add real positive impact to the lives of their customers, employees, and shareholders often see greater consumer loyalty, increased brand value, and market share gains. These are often the drivers of durable competitive advantages and tend to be rewarded by the market.  Many economies within emerging and frontier markets are a key part of the supply chain for raw materials fundamental to the electrification of key emitting sectors and decarbonisation of the grid, as well as leaders in innovation in financial solutions that enhance financial inclusion outside the confines of more established and dated financial systems. 

To qualify for the Strategy, a company must contribute positively through the products and services that it offers, measured through revenues generated from sustainable activities. Redwheel defines a sustainable investment (“Sustainable Investment”) as a company with 35% or more in revenues (or alternative measure of activity) contributing positively to one or more UN SDG.  The Strategy may also invest in companies that are investing operational expenses or capital expenditures towards future sustainable activities and/ or companies that are facilitating the advancement of one or more SDG but whose revenues are not directly attributable to an SDG.  The Team integrates third party data and internal analysis into its sustainable activity assessment framework.

Additionally, all investments in the strategy must meet global screening standards, e.g., UN Global Compact, OECD guidelines, UN Guiding Principles etc), do no significant harm to environmental and social objectives, and follow good governance practices.

The Team applies binding exclusion criteria as part of its investment decision making process. The Team applies hard exclusions on companies that derive income from products and business practises considered to be harmful. The selection criteria may not be disapplied or overridden by the Team.

The Team invests in companies have dominant market positions with strong management teams in order to capitalise on the growth dynamics of their underlying economies. The Team invests on a growth-at-a-reasonable-price (GARP) valuation basis and believes in consistent, on-the-ground research across all parts of our universe in Asia, Latin America, the Middle East and Africa. They pursue an idea-focused rather than index-driven approach to investing which allows them to actively allocate capital across regions, countries, and sectors. To guide their bottom-up fundamental research efforts, they have built a globally integrated research process in which top-down macro and thematic research dynamically informs the bottom-up perspective. The Team has been an early and long-term investor in emerging and frontier markets through market cycles. This allows them to compound lessons learned, and gain differentiated access given strong relationships with company managements and industry practitioners.

Exclusions

The Redwheel Sustainable Emerging Markets Equity Fund discloses as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR).

The Strategy applies hard exclusions on companies that derive income from products and business practices considered to be harmful to the environment or society. Compliance of the Strategy’s investments against the stated exclusion criteria is monitored on a pre-trade and post-trade basis. Investments are prohibited by the central portfolio management system where an issuer is considered by a third-party sustainability data provider to have characteristics which meet the exclusion criteria.

Process:

The idea generation process within the Emerging and Frontier Markets Team is a dynamic one in which the whole investment team participates. Members of the investment team are highly encouraged to share their ideas and views with the rest of the Team and, by doing so, enhance the idea generation process. There are regularly scheduled Team meetings to ensure idea sharing. Ideas are typically generated from either the top-down perspective, whereby an Investment Committee member, together with the portfolio managers, discusses themes and the current macro environment, or through bottom-up fundamental analysis which is performed by the portfolio managers and analysts. The Team believes all their investment ideas are generated internally.

Initial screening 

Redwheel has engaged a third-party data provider, Sustainable Development Investments – Asset Owner Platform (“SDI-AOP”), to assist with the in screening for sustainable investment opportunities in the wider emerging and frontier markets universe. SDI-AOP is an asset owner-led platform utilising a combination of machine-learning and human verification to provide the Team with a universe of stocks using a transparent methodology. The output contains a range of numbers and ratings, including the company’s SDG alignment (i.e., which of the 17 UN SDGs is a company’s activity linked to) and what percentage of the company’s revenue is aligned to specific SDGs.

In cases where SDI-AOP does not provide data on a company (for reasons such as, but not limited to, being part of a non-covered sector/geography or the company having recently listed) or when the portfolio managers believe that SDI-AOP is over/underestimating a company’s revenue contribution to UN SDGs, the Team undertakes an internal impact assessment. This internal impact assessment is built on the IRIS+ framework developed by the Global Impact Investing Network and allows the Team to directly align a company’s revenue to one or more SDGs to arrive at a sustainable revenue figure. The impact assessment is submitted for internal review to the Redwheel’s Sustainable Strategy, Governance and Policy team for discussion. If approved, the internal sustainable revenue figure is uploaded into Redwheel’s internal data platform for monitoring and reporting purposes.

The Sustainable Emerging Markets Strategy is therefore able to challenge the data provided by third party providers, including SDI-AOP. This is done through a robust and repeatable process that is aided by Greenwheel and for which oversight and ultimate approval/rejection is carried out by the Redwheel’s Sustainable Strategy, Governance and Policy team. This provides investors with reassurance of the Strategy’s sustainability credentials which we believe is a key differentiator relative to other Sustainable Emerging Market strategies in the market.

The Team assesses companies' social and environmental impact using data from other sustainability providers such as Sustainalytics and Institutional Shareholder Services (ISS) ESG Climate Solutions. The Strategy utilises Sustainalytics ESG Risk ratings and Controversy scores as a screening tool and for complementing the internal ESG assessment process. ISS Climate Solutions provides data on climate change risk and its impact on investments.

Sustainability Research; Thematic Analysis 

Following the initial screening described above, the investment universe is further defined through top-down thematic analysis focusing research on the most urgent challenges. The Strategy focuses on both social and environmental goals, recognising the need for both to create true sustainable growth for all. Each of the Team’s investment themes are aligned with a primary UN SDG.

The universe is then further reduced by agreed upon exclusions, such as thermal coal, tobacco, controversial weapons, oil and gas, oil sands and shale. In the Team’s experience, impactful businesses tend to have strong commitment and intentionality, with strong governance and business practices that tend to be well-aligned with high ESG standards. However, there are situations when companies may drive negative impact on some parts of the business, or lag in ESG standards. The Team also takes into consideration global screening standards and good governance standards.

Approximately 1,150 stocks meet the above criteria.  

Sustainability Research; Impact Assessment   

The Team uses the Global Impact Investing Network (GIIN), IRIS+ methodology to conduct impact assessments. These assessment reports are particularly vital for stocks not covered by SDI-AOP, or where the Team is contesting the third-party assessment. The report identifies the specific challenge that the company is addressing for context, followed by the key pillars of the framework:

• What is the challenge and potential solution?
• Who benefits come from the output of the company’s products and services?
• How is the impact created and
• How Much impact is created? SDI % revenue is our universal metric for this.
• Risks to Impact: Where are the risks for unintended negative impact?

Impact assessments are the output of collaborative effort by the lead analyst, sector captain, thematic sector captain, building off interactions with the company and proprietary research. Through the impact assessment process, the Team also recognizes and articulates areas of engagement. These could be directly related to Principal Adverse Impacts (PAI) to which the Strategy has committed, such as Board Diversity or Climate Policy, or specific controversies that need to be resolved. Quite frequently engagement is focused on the availability of granular sustainable revenue data. Strategies run by the Emerging and Frontier Markets Team have established protocols and processes in place to engage with company management. The analysts also leverage the Team’s existing sustainability specialists in guiding their engagement strategy and process.   

Resources, Affiliations & Corporate Strategies:

Our investment teams and wider business are supported and challenged by specialists split across three sustainability verticals:

The Strategy, Governance and Policy team is led by Olivia Seddon-Daines and is responsible for policy design, sustainability strategy setting, building and operating governance processes, communication and advisory with investment teams, and communication with a range of internal and external key stakeholders. Olivia is supported by Djolan Captieux and Emma Kurtz.

The Stewardship and Regulatory Change team is led by Chris Anker who supports investment teams with engagement and proxy voting and, working closely with our Legal and Compliance teams, monitors and evaluates global regulatory initiatives relating to responsible investment

The Thematic Sustainability Research team, Greenwheel, is led by Stephanie Kelly. This team’s remit is to produce thematic sustainability research commissioned by Redwheel investment teams and support Redwheel’s responsible, transition and sustainable investment strategies at each stage of the product life cycle. Stephanie is supported by a team of specialists with experience from within and outside the asset management industry. Her team includes Jessica Wan who leads social research and Paul Drummond who leads climate and environment research both of whom joined in 2023.

Olivia, Chris and Stephanie report directly into our Head of Investments Arthur Grigoryants who is executive level sponsor for our firm's activities relating to responsible investment. His regular interactions with investment team heads ensures frequent reflection on evolving client interests.

All investment teams are encouraged to actively engage and participate in the work of Redwheel’s Sustainability Forum, whose principal aim is to support debate and discussion on ESG integration approaches. The forum meets on a monthly basis and provides a key mechanism for our business and our investment teams to:

• develop and improve - through collaboration - organisation level and Team level policies and practices with respect to sustainability.
• share knowledge and understanding of current best practices in respect of company ESG risk management, ESG integration, engagement activities, voting, dealing with client expectations, reporting etc.
• monitor and agree current priorities for engagement and collaboration activities.
• develop and implement education programs for the investment Teams. This could include updates on regulatory frameworks, insights into client expectations, thematic topics (climate, biodiversity etc.)
• leverage Redwheel level membership in organisations/initiatives

Governance and oversight is provided via the Redwheel Sustainability Committee. Standing committee members in addition to Heads of sustainability functions include CEO Tord Stallvik and Head of Investments Arthur Grigoryants, who are both members of Redwheel’s Executive Committee. The Sustainability Committee meets formally on a quarterly basis to review sustainability issues both in a corporate sense and in terms of the delivery of responsible investment in practice by our investment

Redwheel are a signatory or a supporter of the following organisations and initiatives:

• UN Principles for Responsible Investment (2020)
• Investor Forum (2020) - one of our portfolio managers is a member of the board
• ClimateAction100+ (2021)
• NatureAction (2023)
• Institutional Investors Group on Climate Change (IIGCC, 2021)
• Investment Association – Sustainability & Responsible Investment Committee (2021)
• Investment Association – Stewardship Committee (2024)
• Corporate Governance Forum (2021)
• Pensions and Lifetime Savings Association - Stewardship Advisory Group (2021)
• CDP (2021)
• UN Global Compact (2022)
• UK Stewardship Code (2022)
• Access to Medicines Index (2023)

SDR Labelling:

Not eligible to use label (out of scope)