Fund Size: £12.10m

Total screened & themed / SRI assets: £420.80

Total Responsible Ownership assets: £8234.00

Total assets under management: £8380.00

As at: 31/12/24

Contact: Alex.hall@guinnessgi.com

Overview

Filters

Fund information

Policy

Investment philosophy:

We believe that ESG analysis is embedded within a number of these activities. Specifically:

• Understanding long-term demand drivers leads us to sustainable themes. We believe companies with exposure can benefit in the long-term as consumers and nations change preferences, and these themes can help identify whether a business’ products and services can truly be deemed sustainable.
• Our intelligent screening and exclusions of a large group of relevant equities includes ESG scoring to identify and exclude businesses with inadequate ESG practices whilst helping prioritise potential investments for further due diligence.
• Understanding what we own involves a quantitative and qualitative sustainability assessment of investee companies with the intention of better understanding revenue exposures, demand drivers and ESG risks and opportunities. It is here we also aim to interact with investee companies around ESG concerns to help clarify certain practices and steer management into better ESG strategies.

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Specifically, ESG is embedded into the investment process in the following 3 ways:

• Exclusionary – At the universe construction phase, we apply exclusionary filters to screen out companies whose products or services are harmful, and whose ESG practices are inadequate. Namely we exclude companies which derive material revenue from:
  • Adult Entertainment
  • Alcohol
  • Coal
  • Fossil fuels
  • Gambling
  • Nuclear energy
  • Palm oil
  • Tobacco
  • Weapons

We also exclude those companies which have been scored as a laggard (B or CCC rating) by MSCI and those on the Norwegian Council of Ethics exclusion list. Such businesses tend to display inadequate or worsening management of ESG issues and are vulnerable to ESG related disruptions and controversies.

• Sustainability Assessment – Having prioritised potential investments from our universe for further due diligence, we employ a sustainability assessment of the company. Here, we look quantitatively and qualitatively at the company’s ESG risks and opportunities from both a product and practice perspective. We also use sustainability themes to guide our assessment on whether a company’s products/services are materially exposed to long-term sustainability demand drivers. Currently, we employ 3 sustainability themes (each with respective sub-themes), which are:
  • Health & Wellbeing
  • Productivity & Connectivity
  • Resource Efficiency
• Stewardship - We aim to interact with the investee companies through management engagement meetings and through proxy voting. We believe these activities can help influence better ESG practices, improving data disclosure and strategies, whilst enabling us to further our knowledge of the company.

Ultimately, the fund is constructed using a bottom-up stock picking process of our 30 best ideas with no requirement to ‘fill’ certain sustainability buckets. As such, the fund does not aim for any specific positive environmental or social impacts but instead aims to give investors exposure to more general positive impacts from investing in companies enabling the transition to a more sustainable economy through their products and practices.

Process

Universe Construction:

Although the fund is designed to invest in sustainable companies, our starting point in selecting our investment universe is to identify companies with persistently high and/or improving return on capital.  We find that companies exhibiting quality characteristics, positively correlate with better ESG scores. Hence, we find that by first screening for high quality businesses, we indirectly exclude many businesses that have been deemed to have below average or inadequate management of ESG issues.

However, this alone does not mean that we end up with a pool of companies automatically deemed sustainable. In order to further increase our chances of finding these companies, we apply exclusionary screens in order to filter out companies whose products or services are harmful, and whose ESG practices are sub-standard. Namely we exclude companies which derive material revenue from:

• Adult entertainment
• Alcohol
• Coal
• Fossil fuels
• Gambling
• Nuclear energy
• Palm oil
• Tobacco
• Weapons

We also exclude those companies which have been scored as a laggard (B or CCC rating) by MSCI and those on the Norwegian Council of Ethics exclusion list. Such businesses tend to display inadequate or worsening management of ESG issues and are vulnerable to ESG related disruptions and controversies.

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Fundamental Analysis:

From our universe, we then seek to identify which companies are the most attractive long-term investment propositions. We apply screening and utilise scorecards based on quality, sustainability, growth, and valuation to prioritise candidates for extended due diligence.

We then subject all potential investments to a detailed sustainability assessment to initially identify whether a business’ products and services can truly be deemed sustainable – and to what extent.

The 3 broad sustainable themes currently employed are:

• Health & Wellbeing
• Productivity & Connectivity
• Resource Efficiency

The sustainability assessment consists of quantitative and qualitative analysis of investee companies with the intention of better understanding revenue exposures, demand drivers and ESG risks and opportunities.

The quantitative analysis screens companies for which data is available and scores them based on the quality of their ESG metrics, the extent of their ESG disclosure and the momentum of both. The ESG scoring system is tailored to suit different industry sectors (as described by the Global Reporting Initiative) and, in this way, each company is only evaluated relative to its peers and its industry sector on the most relevant metrics. The peer relative analysis allows us to rank companies versus relevant peers and therefore does not benefit or limit one industry sector versus another. The scoring considers three key dynamics:

• Disclosure; where higher levels of disclosure is scored higher than lower levels;
• Performance; where companies that have better ESG characteristics and ESG performance metrics than their peers score higher than companies with worse metrics;
• Improvement; where companies that are improving their ESG performance metrics (in either absolute or relative terms) are scored higher than non-improving or deteriorating companies.

Above all, the due diligence process enables us to understand what competitive advantages or barriers to entry are sustaining a company’s return on investment to determine whether the returns will persist. We also recognise that sentiment and hype can sometimes drive up the valuations of sustainable companies and so we try to maintain a strict value discipline. We want to avoid paying up for high levels of expected growth in the future, and therefore use a variety of valuation tools including looking at valuations vs sectors, peers and the company’s history, as well as looking at the quality and growth metrics baked into a company’s valuation relative to alternatives.

Resources, Affiliations & Corporate Strategies

Guinness Global Investors provides actively managed portfolios of listed equities in equity income, growth, and sector specialist strategies to assist investors in achieving long-term returns. We invest with low turnover, giving us long holding periods.

The ultimate responsibility for our responsible investment approach is at Board level and lies with our chief executive officer. Our CEO chairs the Responsible Investment Committee, which includes all portfolio managers and has the objective of developing and monitoring ESG incorporation and stewardship activities.

Responsibility for day-to-day consideration of responsible investment, ESG incorporation and stewardship lies with the investment teams themselves. We do not have a separate ESG team that carries out individual company ESG analysis; instead, the weight of this analysis falls on the portfolio management teams who make the ultimate investment decisions. We believe that this is the best way to make investment decisions and is consistent with our investment philosophy that responsible investment and ESG factors are integral to the investment process.

Three dedicated responsible investment analysts provide support to all investment teams and prepares company-wide analysis and materials.

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ESG Incorporation

We combine strategic sector selection with a fundamental screening process to identify companies to analyse and assess in detail. We believe companies that have achieved sustainable growth in cashflows and have managed their businesses well through economic cycles are likely to continue to do so.

Fundamental data and rigorous in-house research are the cornerstones of our investment process. This includes considering the impact of environmental, social and governance factors, which has evolved over time as more relevant data has become available. We believe that incorporation of ESG factors as part of our detailed company analysis enables us to enhance our investment process, rather than fundamentally alter it, and improves our ability to achieve our investment objectives.

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Engagement

As active shareholders with long-term investment horizons, engagement is a key part of our investment management process. We engage with investee companies:

• To influence investee companies proactively on ESG issues;
• To encourage improved or increased ESG disclosure;
• To gain a greater understanding of their ESG strategy.

Each engagement activity is made individually, with an objective as described above. We engage directly and collaboratively and do not prioritise between the various approaches.

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Voting

Proxy voting and the consideration of corporate governance issues are important elements of investment management. Voting is performed by the portfolio managers of the relevant strategy. In principle, our proxy voting policy is designed to support the investment managers in making decisions that maximize a company’s shareholder value.  

We intend to exercise all voting rights where we retain voting authority. There may be exceptions in some circumstances; administrative arrangements may prevent votes being cast or it may not be in the best interests of clients to vote (due to restrictions on liquidity or ‘share blocking’).

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Involvement with Stakeholders & Industry Initiatives

We understand that participation in relevant industry initiatives is essential to the development of best practice in responsible investment. We participate in several initiatives in order to promote proper functioning of markets, better our understanding in the area and contribute to the industry. These include:

• The Investment Association (IA)
• The UK Sustainable Investment and Finance Association (UKSIF)
• The Independent Investment Management Initiative (IIMI)
• The Task Force on Climate-related Financial Disclosures (TCFD)
• Climate Action 100+
• CFA Sustainability Community Champions Group
• UN PRI

Literature

• Fund factsheet
• Our Approach to Sustainable Investing
• Our Approach to Remuneration
• Fund Exclusion Policy

A number of Fund Filter results reflect the fact that this specialist product, by design. For current exclusions, please see the Fund’s Exclusion Policy. Other areas are not excluded in our prospectus but are outside the investment remit of the fund.

Last amended: 31/07/24 09:29