Fund Size: £552.00m

Total screened & themed / SRI assets: £3500.00

Total Responsible Ownership assets: £3500.00

Total assets under management: £3500.00

As at: 28/02/23

Contact: enquiries@montanaro.co.uk

Overview

Filters

Fund information

Policy

Companies within the Fund must have at least 50% of revenue aligned to six impact themes which support the UN Sustainable Development Goals.  Our impact themes are: Environmental Protection; Green Economy; Healthcare; Innovative Technology; Nutrition; and Well-being.   

Alongside ensuring that companies meet our requirements to contribute to our six impact themes, we also assess the wider “ESG” footprint of our companies via our bespoke Ethical and ESG Checklists:

Ethics Checklist:  We do not invest in: exploration & production fossil fuel companies; tobacco producers & distributors; alcohol producers & distributors; weapons manufacturers; gambling companies; adult entertainment; high interest rate lending companies; animal testing (ex-healthcare related companies).  We exclude from investment any company with 10% or more revenue exposure to these restricted business areas.  A company will either “pass” or “fail” the Ethics Checklist.   

Environmental Checklist: We use MSCI data to measure the environmental intensity of our companies across carbon, water and waste.  We also assess their carbon transition risk (how exposed a company is to stranded assets).  We assess the environmental management culture, supply chain management and assess to what extent a company’s products/services are a positive influence on the environment.  Finally, we consider the quality of a company’s environmental reporting and if they have a Net Zero Carbon target or other environmental targets in place.  Companies are scored out of 10 for their environmental profile.    

Social Checklist: Our Social Checklist is designed in line with the UN Global Compact. We analyse data relating to a company’s workforce including: staff turnover; % of women in the workforce; % of women in management; and gender pay gap.  We also assess a company’s tax profile as well as human rights, labour practices, HR management/training, and the social value add of their products/services.  Companies are scored out of 10 for their social profile.          

Corporate Governance Checklist: This is broken down into three sections: Remuneration of the Executive Board; Capital Allocation Record; and Board Independence & Insider Ownership (which includes the % of women on the Board); and Other Corporate Governance Issues.  Companies are scored out of 10 for their governance profile.

Scores for each ESG area weighted and then aggregated to produce a final ESG score out of 10.  The conclusions are presented to the Investment Committee who discuss any issues with the Analyst.  The Committee will decide to continue with, or discard, a new idea based on the Analyst’s findings.  The Sustainability Committee monitors the ESG scores of companies on our Approved List.  Companies deemed “outliers” are candidates for engagement.

Process

There are three stages to the investment process for the Better World Fund. Analysts conduct all the work themselves.

Stage 1: Impact assessment

The first step in our investment process is the assessment of positive impact, which is done via the completion of an “Impact Report” by the Analyst responsible for covering the stock (Analysts are organised on a sector basis).  This stage focuses solely on the products and services of the company and the potential for positive impact in support of the UN SDGs and out impact themes.  Our Sustainability Committee votes on whether a stock passes or fails for impact.  The following key impact criteria are required fields in our Impact Report:

• Address a key sustainability challenge;
• Have >50% revenue thematically aligned to our proprietary impact themes (“materiality”);
• Support at least one UN SDG Goal;
• Assess management intentionality;
• Assess product/service additionality;
• Assess product/service affordable.

Since launch, the Sustainability Committee has failed 20% of the ideas it has been asked to consider.  It is a tough hurdle.     If the Sustainability Committee pass the stock for impact, the investment team will undertake further analysis. 

Stage 2: Quality assessment

Once a company has passed Stage 1, we assess the Quality of a company, considering the financial profile, ESG and management.  Analysts complete our Ethical & ESG Checklists.  ESG forms an intrinsic part of how we define the Quality of a company.  Our Ethical & ESG Checklists consider the following areas:

Ethical Policy: 

On ethical grounds, we do not invest in the following areas of the economy.  We exclude from investment any company which derives 10% or more revenue from these areas: 

• Exploration & production fossil fuels
• Tobacco producers & distributors
• Alcohol producers & distributors
• Controversial weapons
• Gambling
• Pornography
• High Interest rate lending
• Animal testing (unless it is required by law for healthcare related companies.)

Environmental Policy:

Our Environmental Policy allows us to assess the risks and opportunities that our companies face from an environmental perspective.  We believe that Climate Change is a threat that every business must mitigate and adapt to.  We engage extensively with management teams on environmental matters.  

We consider specific areas of environmental exposure in our analysis:

• Environmental intensity: how much carbon, water and waste is produced/consumed by our companies?
• Stranded asset risk: how exposed are our companies to unanticipated or premature write-downs of assets?
• Reporting: which companies are failing to report quality environmental data?
• Net Zero Carbon: which of our companies have taken steps to materially reduce their carbon footprint?

We use MSCI, Bloomberg and company sourced data to measure the environmental intensity of our companies across carbon, water and waste.  Where available, we record the carbon intensity of companies across Scopes 1, 2 and 3 on the basis of tonnes of carbon used per million US Dollars of sales generated.  We do the same for water and waste.  This allows us to compare the carbon intensity of companies across our Approved List.  

We also monitor MSCI’s Low Carbon Transition score.  This combines Management assessments for the following issues: Carbon Emission for all companies; Product Carbon Footprint; Financing Environmental Impact; Opportunities in Clean Tech; and Opportunities in Renewable Energy where available. A score is given from 0-10.  Higher scores indicate greater capacity to manage risk.

In addition to the above, we record MSCI’s Low Carbon Transition score.  Companies with higher Low Carbon Transition score are more aligned with the Low Carbon Transition compared to the companies with lower scores. A score is given from 0-10.

We also assess environmental management culture (in accordance with UN Global Compact Principles 7-9); supply chain management; and the extent to which a company’s products/services are a positive influence on the environment. We also record whether a company’s operations are certified by a national or global standard (e.g. ISO 14001).

Finally, we consider the quality of a company’s environmental reporting and if they have a Net Zero Carbon target or other environmental targets in place.  Companies are scored out of 10 for their environmental profile. 

Social Policy:

Our Social Policy allows us to analyse specific social factors, leading to more accurate risk analysis of investment opportunities.  We engage with companies on social issues – by doing so, we believe that we can help to encourage management teams to contribute to a more sustainable world, which will ultimately lead to more sustainable investment returns.

We use MSCI, Bloomberg and company sourced data to measure and record the following:

• % Employee Turnover
• % Women in Workforce
• % Women in Management
• Gender Pay Gap Breakout
• Company 5-year tax rate
• Underlying tax rate
• Estimated Tax Gap
• Social tax rating

Additional areas that we focus on are influenced by the UN Global Compact: Human rights; Bribery & Corruption; Equal Opportunities; Labour Practices; Human resources management; Supply chain management.

Companies are scored out of 10 for their social profile.       

Corporate Governance Policy:        

We wish to align the interests of company management teams with the interests of long-term shareholders.  Ensuring high standards of corporate governance forms an important part of this.  Our logic here is simple: good corporate governance increases the quality of a business; the higher the quality of a business, the greater the sustainability of returns. 

Our Checklist considers:

• Remuneration
• Capital Allocation Track Record
• Board Independence & Diversity

Companies are scored out of 10 for their governance profile.         

Scores for each ESG area weighted and then aggregated to produce a final ESG score out of 10.  The conclusions are presented to the Investment Committee who discuss any issues with the Analyst.  The Committee will decide to continue with, or discard, a new idea based on the Analyst’s findings.  The Sustainability Committee monitors the ESG scores of companies on our Approved List.  Companies deemed “outliers” are candidates for engagement.

The conclusions of our Quality assessment are presented to the Investment Committee who discuss any issues with the Analyst.  The Committee will decide to continue with, or discard, a new idea based on the Analyst’s findings. 

Only companies that pass the scrutiny of the Sustainability Committee and the Investment Committee are added to the Impact Approved List and are eligible for inclusion in the Better World Fund.

Resources, Affiliations & Corporate Strategies

ESG is fully integrated into the Montanaro Investment Process.  ESG analysis is conducted by our Research Analysts alongside fundamental analysis.  The result is that our investment decisions makers “do” ESG”.  Companies that we consider for investment must pass the criteria set out in the following Ethical and ESG policies.  Each policy has a corresponding checklist which our Analysts complete during the research process.

Our Investment Team consists of 11 Investment Analysts who conduct ESG and impact analysis on the companies under their coverage; the Head of Sustainable Investment who helps to coordinate our approach to sustainable investing; and an ESG and Impact Specialist who supports the research analysts on certain research and engagement topics. 

In addition, we have an internal Sustainability Committee who ensures that our approach to ESG and impact remains consistent across the house. 

We are signatories to a number of industry codes, policies and disclosures:

• UN PRI (2009)
• UK Stewardship Code (2010)
• Carbon Disclosure Project (2015)
• Montreal Carbon Pledge (2017)
• TCFD (2018)
• B Corporation (2019)
• Net Zero Asset Management Initiative (2021)
• Tobacco Free Portfolios (2022)
• Living Wage Accreditation (2022)

Dialshifter

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

Environmental Protection and the Green Economy are two of the six investment themes that support the overarching framework of the United Nations Sustainable Development Goals. We seek out companies that are contributing to the transition to a low carbon economy and are developing solutions to limit pressure on natural resources.

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

At COP 25, we joined fellow B Corporations to announce that Montanaro would achieve Net Zero by 2030. We have partnered with Climate Care to offset the impact of our business travel and we work hard to preserve and use our resources efficiently. We conserve electricity, use sustainable suppliers and manage our office waste responsibly. We do this because we expect high ESG standards from the companies in which we invest, and we aim to practice what we preach.

Literature

• Fund overview & literature (including factsheet)
• ESG HANDBOOK: Sustainable Investing at Montanaro
• Impact Report
• Net Zero Carbon Report
• Deep Dive Project - Biodiversity

Last amended: 03/01/24 01:37