Fund Size: £24.80m

Total screened & themed / SRI assets: £89.80

Total Responsible Ownership assets: £89.80

Total assets under management: £328.13

As at: 31/03/24

Contact: suresh.mistry@alquity.com

Overview

Filters

Fund information

Policy

ESG analysis is a critical component of Alquity. There are certain practices we believe are inconsistent with long-term financial returns and an overall positive societal impact. Our Red Flags are exclusions for companies within sectors that are not consistent with our process and either are detrimental to or provide no environmental or societal benefits. This includes companies with over 5% of revenues or profits in their most recent financial report attributed to:

• Tobacco
• Liquor
• Gambling
• Narcotics
• Adult entertainment
• Armaments
• Fossil Fuels (exploration and production)
• Nuclear Power
• Coal mining
• Non-renewable power utilities
• Fur Trade
• Hydrogen power (unless green hydrogen)
• Financial institutions engaging in abusive lending practices*

*Such as excessively high interest rates, excessive penalty fees, misleading marketing, and illegal debt collection practices should be excluded. Excessive interest rates are defined as rates that exceed fair compensation taking into account the target borrower’s risk profile as well as the lenders funding costs and operational expenses.

Here are our ESG green flags. We will consider companies that meet the following criteria:

• Companies with independently audited accounts
• Companies that meet investors or arrange regular open-access calls
• Company that provide transparency on identity of majority shareholders
• For high-risk industries we only select companies that publicly disclose Health and Safety policies
• For non-pharmaceutical companies, we only select those that ban animal testing (unless it is required by law and must be a substantial minority (<20%) of overall sales)
• For companies that use significant amounts of water in their operations or production processes, we only select companies that discloses usage and/or conservation levels
• For high-risk industries we only select companies that publicly provide or disclose when requested GHG emissions data
• Only companies with a clean bill of health and without ongoing ESG controversies and unresolved scandals

We believe that the increase in Greenhouse gas emissions generated by the extraction and burning of fossil fuels and deforestation have directly led to the warming of the Earth’s climate. We believe that if these activities are not dramatically reduced the world faces a rise in global temperatures that will lead to catastrophic consequences for the planet’s natural ecosystem and its ability to sustain the growing human population. We also believe that the transition to a net zero emission global economy must be a fair transition, and go hand in hand with ensuring a more sustainable and equitable society for all. The portfolio is aligned with our climate declaration as follows:

• High Risk Industry classification: any company involved in sectors with high GHG emissions are subject to higher scrutiny and in addition to disclosure of GHG emissions, these companies should also have plans to reduce these in the future. In addition, companies in sectors subject to transformation due to the transition to a low carbon economy have their risk premium increased and hence are only included in portfolios if both their ESG standards and investment thesis are strong.
• We exclude all companies involved in the exploration and production of fossil fuels (including thermal coal). In addition, sectors such as livestock farming, aviation and shipping are treated as “high risk” industries.
• We engage with all our portfolio companies to encourage them to firstly disclose their GHG emissions and secondly implement plan to reduce these over time. We are advocates of a “just and fair” transition and as we are investing in many developing countries, we provide advice and share best practice to support company behaviour and plans.
• Finally, donations from our funds help support equitable economic development where we invest, helping the most vulnerable out of poverty to act as contributors to the development of fairer, more sustainable world.

The Alquity Future World Fund portfolio is also intended to deliver a significantly smaller environmental footprint than its benchmark (at least, around half GHG emissions and 90% less water usage). The fund has set a GHG intensity reduction target aligned to the Paris 1.5 degree scenario and these commitments are disclosed publicly via the Net Zero Asset Managers initiative.

Where there may be divergence, we ensure that the reason is understood and transparently communicated to our clients through our reporting. The impact measurement supports our stewardship and engagement activities. Several of our companies specifically have a positive impact, through business models which aid decarbonisation, healthcare or energy efficiency. However, this is not a specific target.

Process

All stocks that have met our themes are reviewed against our exclusions and green flags, through a combination of Google checks and/or a review of corporate information disclosure. If there are companies that are not excluded explicitly, but where we are not confident that management’s value are aligned with Alquity’s, then we will err on the side of caution and exclude the company.

A deeper ESG analysis takes place in the stage 2 of our investment process. We carry-out forward-looking, qualitative ESG assessment and rating conducted through significant engagement with management teams. Specifically, we look at behaviours and practices across the firm in the context of global and regional best practice. As a discipline, and for comparability, we then assign a rating to each institution, which captures risk and the quality of judgement and decision making. DCF valuations are influenced by the ESG scoring, via an increase or decrease of the equity risk premium: a 50bps reduction in for an “A” rating or a 50bps increase for a “C” rating. We include any changes in the ESG rating of the holding as part of the investment case review.

Only those companies rated C or better can be included in the portfolio. To be clear, this means that we will only invest in firms where there is satisfactory quality and alignment of management.

Moreover, we are interested not only in the absolute standard of “ESG Quality”, but also the ability of a firm to improve its judgement, communication and efficiency over time.

We track the impact of each of our portfolios against key metrics aligned to the United Nations Sustainable Development Goals (UNSDGs). This impact analysis is provided by Impact Cubed, an independent third-party who assess each fund against its relevant index. The outcomes of the portfolio assessment are analyzed by the investment team so that they can understand at

both a stock and portfolio level the environmental, social and governance footprint of our funds and engage with companies to improve these outcomes over time. Points we would like to see improved over time, and commitments made by management to enhance their ESG practices, are recorded on the “Engagement” section of our stock notes. These areas of improvement and commitment are reviewed on a regular basis when the investment team engage with the management of these companies. These notes can be made available upon request.

Exercising our voting rights is also an important aspect of Alquity’s investment process, as we must ensure our interests as minority shareholders are well represented. Voting is exercised by the investment team on a weekly basis and conducted in accordance with our Principles of Governance, which can be found on our website.

Almost all the research is carried-out in-house by the investment team. This allows a consistency of approach and a degree of rigor we do not believe we could achieve elsewhere. Moreover, ESG analysis is an integral part of our investment strategy (as opposed to a screening or secondary consideration) and therefore, occurs alongside traditional financial and business analysis.

Resources, Affiliations & Corporate Strategies

As previously mentioned, almost all the research is done in-house.

The responsibilities of the investment team cover all aspects of company fundamental research (ESG and Financial). The team are interchangeable as they cover a range of stocks and sectors. We do not create sector or country specialists but rather focus on the consistent implementation of the investment process, shared understanding and constructive challenge during company reviews. Whilst led by Mike Sell (Head of Global Emerging Markets), Daniel Billis is a Portfolio Manager and Kieron Kader is Associate Portfolio Manager, so provide back up as well as the ability to execute trades as required. Francisco Gala, business analyst, supports the team with ESG analysis and the engagement activity.

The responsibilities of the investment team cover all aspects of the research. Additionally, to ensure that our investment team follows a robust and consistent approach to ESG investing, we have governance in place to monitor, evaluate and support the team’s investment process and our ESG ratings. This governance mechanism is chaired by our Head of Quantitative Risk (Marnie Aragon-Uy), and includes the entire investment team (Mike Sell, Kieron Kader and Daniel Billis) and our CEO (Paul Robinson).

We place a high priority on keeping our staff current on sustainability issues and follow the strict requirements that is imposed on us via the ISR Label which we are required to validate:

1. Training in ESG analysis (internal and externally) and time spent by the management company on continuous training;
2. Internal communication (funds managers, salespeople, etc.) of the extra-financial analyses conducted.

Furthermore, Alquity disseminates current industry issues on a regular basis to our all employees and also holds mandatory CPD sessions on relevant industry issues.

We are actively involved at a strategic level in encouraging companies to improve their ESG disclosure practices. This includes support not only for the UN Principles for Responsible Investment (UNPRI), of which we are signatories since our foundation in 2010. We are also members of the Net Zero Asset Managers initiative, of the FAIRR Initiative, the Net Zero Asset Managers initiative, and the Plastic Solutions Investor Alliance. In addition, we are signatories of the Tobacco Free Portfolios’ pledge, among other initiatives.

Dialshifter

This fund is helping to ‘shift the dial from brown to green’ by…

...Using a combination of Red flags, ESG ratings, KPI driven engagement and transforming lives donations the fund drives the transition from brown to green across Emerging Markets with a focus on encouraging environmental disclosure and action towards implementation of tangible low carbon technologies and processes.

Our organisation is helping to support the Paris Climate Agreement and the Race to Net Zero:

As members of NZAM, Alquity has committed to reducing the GHG intensity of its funds by 60% relative to the 2019 intensity by 2030. This is in line with the Paris Climate Agreement and recognizes that the current global trajectory needs to be steeper than that predicted by NDCs.

Literature

• Fund overview & literature (including factsheet)
• Alquity Investment Process
• Alquity Impact report

The Alquity Asia Fund, the Alquity Future World Fund, the Alquity Indian Subcontinent Fund and the Alquity Global Impact Fund are all sub-funds of the Alquity SICAV (“the Fund”) which is a UCITS Fund and is a recognised collective investment scheme for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (the "FSMA"). This does not mean the product is suitable for all investors and as the Fund is invested in emerging market equities, investors may not get back the full amount invested.

This Document is qualified in its entirety by the information contained in the Fund’s prospectus and other operative documents (collectively, the “Offering Documents”). Any offer or solicitation may be made only by the delivery of the Offering Documents. Before making an investment decision with respect to the Fund, prospective investors are advised to read the Offering Documents carefully, which contains important information, including a description of the Fund’s risks, conflicts of interest, investment programme, fees, expenses, redemption/withdrawal limitations, standard of care and exculpation, etc. Prospective investors should also consult with their tax and financial advisors as well as legal counsel. This Document does not take into account the particular investment objectives, restrictions, or financial, legal or tax situation of any specific prospective investor, and an investment in the Fund may not be suitable for many prospective investors. An investment in the Fund is speculative and involves a high degree of risk. Performance may vary substantially from year to year and even from month to month. Withdrawals/redemptions and transfers of Interests are restricted. Investors must be prepared to lose their entire investment, and without any ability to redeem or withdraw so as to limit losses.

The Fund’s investment approach is long-term, investors must expect to be committed to the Fund for an extended period of time (3-5 years) in order for it to have an optimal chance of achieving its investment objectives.

Last amended: 09/04/24 06:32