ESG Details:
No sustainable investment objective
This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment.
Environmental or social characteristics of the financial product
The Investment Manager believes that responsible investment brings superior investment returns and benefits society and people in the long term. The Investment Manager joined the Net Zero Asset Managers (NZAM) Initiative and established a comprehensive ESG approach focusing on the impact of its investments on the environment and society. Driven by the deep-rooted methodology, it is investing in socially responsible and environmentally aware companies that create long term corporate value by providing the best products and services to society.
Investment strategy
The Compartment aims to achieve long term capital appreciation through investments in high quality sustainable public equities while maintaining a concentrated and liquid portfolio. This is accomplished through a disciplined investment process that considers all risks and opportunities to the performance of the Investment Manager’s investments, including environmental, social, and corporate governance (ESG) factors. The Compartment has deeply integrated the ESG approach in the Investment Manager’s risk management framework and investment process. Poor ESG is the key factor in business risk, so at the screening stage, the Compartment eliminates companies that are not ESG compliant and qualified. The whole process is managed by the Investment Manager’s in-house team that has accumulated many years of practical experience in the marketplace and was one of the earliest adopters of good ESG practices in China. It also excludes companies in the list of exclusion of the Norges Bank and companies producing coal-fired power, tobacco as well as any company in the gambling sector. The governance rating in the Investment Manager’s in-house ESG scoring system consists of over 20 factors including Board Diversity, Ownership & Control, Conflict of Interest, Business Ethics, and all other governance related factors. The Investment Manager has kept a record of companies’ governance history in the risk files, which tracks companies’ management stability, insider trading, dividend ratio, financial risk exposure, disclosure and other factors that would impact ESG rating. The Investment Manager goes beyond a company’s financial reporting and digs into the local practice of management actions including pledged shares, exchangeable bonds, inappropriate merger, and acquisition etc. to assess the real substance of the governance. The Compartment will not invest in those companies that have a low ESG rating and the Investment Manager’s on the ground due diligence has helped to steer away from investing in low corporate governance companies.
Proportion of investments
This financial product promotes Environmental/Social (E/S) characteristics, but will not make any sustainable investments. The Investment Manager will use direct investment to promote Environmental/Social (E/S) characteristics.
Monitoring of environmental or social characteristics
The following main sustainability indicators are used to measure the attainment of environmental and social characteristics promoted by the Compartment: • Environmental indicators: Carbon Emission and Waste Emission. • Social indicators: Labour Management and Health Safety. To get a comprehensive ESG score, over 30 ESG metrics are considered: 1. The Environmental score consists of the following factors: Climate Change, Natural Resources, Pollution & Waste, and Environmental Opportunities. 2. The Social score includes the following factors: Human Capital, Product Liability, Stakeholder Opposition, and Social Opportunities. 3. The Governance score has the largest weight and consists of over 20 factors including Board Diversity, Ownership & Control, Conflict of Interest, Business Ethics, and all other governance-related factors.
Methodologies
The Investment Manager has established an in-house rating system to quantify the qualitative elements of a company’s ESG risks and exposure, and how to manage those risks and exposures. Exposure is scored on a 1-5 scale: • 5 representing no exposure and 1 representing very high exposure. • Management is scored on 1-5 scale, with 5 representing the best practice management and 1 representing no efforts being made. • A company with high exposure must also have very strong ESG management, whereas a company with limited exposure can have a more modest ESG approach. • The Compartment avoids companies with a low management rating below 3 if there are exposures. • The Compartment via screening eliminates companies that are not ESG compliant and qualified. The Compartment has deeply integrated the ESG approach in the Investment Manager’s risk management framework and investment process. Poor ESG is the key factor in business risk, so at the screening stage, the Compartment eliminates companies that are not ESG compliant and qualified. The whole process is managed by the Investment Manager’s in-house team that has accumulated many years of practical experience in the marketplace and was one of the earliest adopters of good ESG practices in China. It also excludes companies in the list of exclusion of the Norges Bank and companies producing coal-fired power, tobacco as well as any company in the gambling sector.
Data sources and processing
In addition to public reported information, we also use third party databases, such as MSCI and Bloomberg to crosscheck our calculations. We check the leading climate reports published by global leading companies in their industries to upgrade our scoring criteria and metrics as well. Third-party industry data will also be integrated in our analysis system When the Investment Manager does not have ESG data available on an investee companies, he will : 1. obtain data indirectly from other sources. For example, for companies without carbon emission disclosure, we will indirectly measure the company's carbon emission through energy consumption data. 2. obtain data through our onsite visits of listed companies, and learn relevant information through field surveys, employee interviews and industrial chain crosschecks; 3. engage with listed companies to further disclose related data in ESG reports To ensure data quality, the Investment Manager will: 1. The investment manager compares the data with 3rd party data. For example, we use a published carbon emission life cycle analysis report as a benchmark to estimate the emissions of our holding companies, and we also use third party databases, such as MSCI and Bloomberg, to crosscheck our calculations. 2. For companies in a similar industry, we will cross-verify the correctness of data through horizontal comparisons. 3. The Investment Manager validates the data through detailed research and extensive on-site due diligence/meetings with different levels of people in the company and industries. The data processing includes : 1. Data collection--- Collect the data from all available source as “Company Report”, Bloomberg , industry website ,due diligence process etc. 2. Data preparation --- Pre-processing data to ensure data validity. 3. Data input and process --- Input relevant data into our system to calculate the desired ESG results such as combined carbon emission, portfolio carbon density, etc. These results are compared with historical data to monitor trends. 4. Data Output & Storage --- These results are output in the form as ESG reports and recorded in our system. The proportion of data that are estimated amount to approximately 17%.
Limitations to methodologies and data
(a) The main limitation regarding the data sources is the lack of available data regarding the target investment universe (Companies established in mainlaind China) (b) This limitation does not affect how the environmental or social characteristics promoted by the financial product because : 1. The current ESG market trend tends to push companies to be more transparent regarding ESG in general 2. Bin Yuan team, through its deep knowledge of the chinese market and via its engagement with multiple companies, is able to retrieve sufficient data and sufficient comfort on data provided by the companies in the investment universe.
Due diligence
The Investment Manager is performing an in-depth analysis on all investee companies. This analysis includes Financial, Non-Financial and Environmental and Social characteristics. The result of this due diligence is incorporated into the investment process.
Engagement policies
Bin Yuan has clear set of comprehensive rules on fiduciary duty and conflicts of Interest. The research team has developed procedures to monitor activities of the firm, which will be compared and complied with the fiduciary duty rules. The internal rules and systems will block those activities accompanied by a warning signal to make internal activities, such as investment, trading etc., to comply. For external activities, all employees are required to report their related activities which will be cross checked by compliance manager. For example, compliance manager will require external parties to submit documents to cross check if there is a conflict of interest exists or breached. The engagement system reinforces their ESG rating process. Engagement is integrated with their ESG work and is the interaction between them and companies. Since ESG is new to China, it becomes a part of their job to engage with the management to provide their opinion and advice, share best practices and make sure the companies are improving. After the communication, they will track the actions of the company and re-rate the ESG factors from the management dimension based on their progress. Besides the company engagement, they are also devoted to the engagement with regulatory bodies to improve the ESG investment environment in China. Instead of outsourcing their engagement activities to the third-party service provider, they choose to engage by themselves. They pursue the full spectrum of engagement that ranges from thoughtful exercise of their proxy voting rights to direct discussions with the Chairman. They also give senior management their feedback that generates from extensive due diligence of meeting staffs and employees at different level and different regions and cross checking with both upstream and downstream players. They have engaged in sharing the industry best practice and educating the companies regarding the staff incentive, work environment safety, workers health awareness, minority shareholder value protection, etc., which they believe are material to the long-term performance of the company. They also encourage companies to provide better disclosure. They collect the feedbacks from companies and the feedbacks of engagement will have impact on the ESG score. An analyst is required to communicate with the companies by e-mail or phone-call and face to face meeting after finding some weakness in their ESG management and update the ESG score based on the companies’ feedback. All the engagement cases are kept in record to monitor the progress of engagement and the number and outcome of engagements will be reviewed in their quarterly ESG review. They keep tracking the progress or outcome of their engagements and plan escalation strategies such as reduction of portfolio exposure and divestment for the unsuccessful engagements.
Designated reference benchmark
No reference benchmark has been designated for the purpose of attaining the environmental or social characteristics promoted by the Compartment.