Sustainable, Responsible &/or ESG Policy:

Themes

The mitigation of biodiversity loss is the Strategy’s overarching investment theme. Under this broad theme, the Team have identified four portfolio themes where we see most potential for investor action:

• Sustainable Materials including Infrastructure materials (alternative building materials which minimise biodiversity loss, additional materials which support biodiversity net gain in urban areas); Energy transition materials (substitutes and alternatives which minimise & mitigate biodiversity loss); Manufactured materials (e.g. apparel); Enablers of supply chain visibility in verticals where biodiversity is a material risk
• Terrestrial Ecosystems including Agriculture – crops (farm to plate – including waste); Agriculture – husbandry (farm to plate – including waste); Urban ecosystems (e.g. permeable surfaces; water control, green walls/roofs, green bridges); Pollution remediation and control & ecosystem monitoring
• Aquatic Ecosystems including Aquaculture & aquatic products (sustainable feed, solutions which limit nutrient pollution, protect against the spread of disease and parasites into wild fish stock); Water storage, use and efficiency; Water system management (including flood and drought protection measures); Pollution remediation and control & ecosystem monitoring
• Circularity and Waste Management including Resource efficiency; Material circularity (all action to enable and deliver re-use, re-cycling, recovery - inc. geolocation/traceability, if for this purpose); Pollution mitigation, management, waste treatment & storage

We believe that investing in solutions that can mitigate biodiversity loss is a long-term structural growth opportunity and we look to invest in companies that have the ability to progress the preservation of biodiversity and embrace the opportunity to deliver an uplift in value both to our investors via share price increase and to society as a whole through products and solutions designed to respond to these pressures.

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Screening

From the initial universe of 9,100 equities in the MSCI ACWI IMI we apply the first screen based on:

• Sector-level exclusions: tobacco, controversial weapons, military contracting, thermal coal
• International norms: exclude companies non-Compliant with the UN Global Compact, OECD Guidelines on Multinational Enterprises and UN Guiding Principles on Business and Human Rights
• Worst performers on ESG risks - Sustainalytics have 5 categories of ESG risk. Level 5 is deemed Severe Risk and this category is excluded.

This reduces the investment universe to 6,500 stocks. Non-relevant sectors (Real Estate, Financials, Energy and Communications Services) are removed from this Responsible Investment Universe to create a Relevant Sector Universe of around 3,000 stocks.

The Team develops a proprietary Solutions Framework to highlight the existing, emerging and available solutions in the market that have the potential to mitigate biodiversity loss aligned to each portfolio theme. The Team then identifies companies who are providing these solutions by performing quantitative and qualitative analysis. This creates the Biodiversity Investable Universe comprised of around 400 companies. 

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Exclusions

The Redwheel Biodiversity Fund discloses as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR) and the Strategy has adopted the following hard exclusions with respect to companies that:

• Engage in the production of tobacco
• Generate 10% or more of revenue from the distribution of tobacco
• Engage in the production or distribution of controversial weapons
• Generate 10% or more of revenue from military contracting
• Generate 10% or more of revenue from thermal coal extraction
• Generate 10% or more of revenue from thermal coal power generation
• Are non-compliant with the UN Global Compact
• Are non-compliant with the OECD Guidelines for Multinational Enterprises
• Are non-compliant with the UN Guiding Principles on Business and Human Rights

These criteria are applied in addition to the firm-wide exclusion of companies considered to be involved in the production of cluster bombs, landmines and bio/chemical weapons.

Hard exclusions prevent new investment in securities of issuers considered to be in breach of the criteria described. The issuers of securities held in the Strategy are also regularly monitored. If a security currently held in the Fund moves into breach of the above exclusion criteria, the Team will act in line with the Redwheel Breaches Policy, which is available upon request.

Process:

Once the opportunity set has been screened down to the 400 stock Biodiversity Investable Universe the Investment Team conducts detailed industry analysis to identify those companies that have the ability to succeed sustainably and profitably.

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Industry analysis:

• Size and longevity of addressable market:
  • Assess the timing and durability of demand for a solution, incorporating regulatory and market drivers.
  • Consider regional variations in need.
  • Scope incumbent technologies, likely new entrants, potential substitutes.

• Assessment of the sustainability of the full supply chain including:
  • Origin of materials.
  • Impact of extraction materials.
  • Providers of equipment and services through the supply chain.
  • Labour practices
  • Transportation and logistics

• Identify policy, geopolitical and ESG risks:
  • Identifying companies and solutions which currently benefit from or have resilience to these factors.
  • Highlighting companies or solutions where satisfactory mitigation of risk is unachievable or probable.

• Industry vertical analysis:
  • Consider full industry vertical, from extraction of raw materials to end of life.
  • Assess capital intensity and competitive positioning of each step in the process.
  • Identify areas with greatest value add and therefore potential for attractive financial returns and non-financial contribution.

• Consider potential for mitigation of risk:
  • Investment team experience to identify potential solutions.
  • Peer analysis for best-in-class approach, leveraging Greenwheel expertise where appropriate.
  • Evaluation of the value and feasibility of change.
  • Engagement where appropriate.

Industry analysis narrows the universe further to 200 companies that undergo detailed fundamental and ESG analysis to create a watchlist. The fundamental analysis process includes financial, ESG & Sustainability assessment to clarify a company’s positioning for the identified opportunity, the risks it faces and its ability to translate this into attractive returns to shareholders.

Sustainable Assessment – what USP does the company have?

• How well does the solution align with the opportunity identified as attractive
• Is it aligned with the direction of regulation and technological innovation
• Ability to achieve material gains in mitigation of biodiversity loss
• Differentiation of current products - additionality
• R&D capability and commitment – intentionality and durability of additionality
• Does the company create negative externalities? Do these restrict the business in its delivery of sustainability and financial performance

Management team – ability to deliver a credible Strategy

• Management experience, skills and track record
• Strategic commitment for growth aligned with the transition ahead
• Appropriate strategy to harness the opportunity and mitigate risk

ESG risk and mitigation – what are the material risks to the business?

• Material environmental risks, robustness of mitigation strategy, potential for improvement, need for further investment
• Labour practices - ability to attract and retain skilled personnel; demonstration of standards sufficient to secure position in the supply chain; risks associated with litigation or fines
• Relations with local stakeholders
• Governance – for corporate stability, decision making and delivery of strategic goals
• Disclosure – financial and non-financial

Financial analysis

• Durability of demand
• Competitive analysis and market share expectations
• Pricing power
• Cost control / robustness of supply chains / need to invest upstream
• Sustainable or improving profitability
• Investment needs – capex and R&D
• Cash conversion
• Appropriate funding structure
• Return on invested capital and marginal return on new capital

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External / Internal Resource

The Team has access to various external research providers to support the investment process:

• Bloomberg (provides real time and historic share prices and company fundamental data, idea screening and portfolio risk management and serves as a news and research aggregator).
• Sustainalytics (a provider of ESG and corporate governance research and ratings).
• Third party research platforms including Berenberg and TD Cowen

We believe there is a great advantage to the Redwheel structure where the investment team independently leads the engagement strategy, combining the financial and non-financial analysis, engaging with companies, and deciding on voting positions. This avoids a disjointed approach where these responsibilities are siloed into separate departments and decisions made without financial context. This Redwheel approach relies on supporting functions that are well integrated into the process.

The Investment Team works closely with Greenwheel, Redwheel’s Thematic Sustainability Research Team. Within the Greenwheel team specifically, the Team have access to a Climate and Environment Research lead and a Climate and Environment analyst. The Investment Team commission sustainability research from Greenwheel which enables the Team to establish a ‘theory of change’ for each portfolio theme. Typically, each ‘theory of change’ will provide:

• Analysis of the risks posed to biodiversity by activities within each theme
• Consideration of appropriate metrics to assess the positive contribution of potential solutions

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 who joined Redwheel in January 2024.
• 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. The final member of the team, Anna Polise, joined in 2022 as Climate Research Analyst.

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 teams.

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

• UN Principles for Responsible Investment (2020)
• Investor Forum (2020)
• ClimateAction100+ (2021)
• NatureAction (2023)
• Institutional Investors Group on Climate Change (IIGCC, 2021)
• Investment Association – Sustainability & Responsible Investment Committee (2021)
• Corporate Governance Forum (2021)
• Pensions and Lifetime Savings Association - Stewardship Advisory Group (2021)
• Sustainability Accounting Standards Board (SASB) (2021)
• CDP (2021)
• UN Global Compact (2022)
• UK Stewardship Code (2022)
• Financing a Just Transition (2022)
• Access to Medicines Index (2023)

SDR Labelling:

Not eligible to use label