Absalon Capital ESG Policy

Key takeaways

  • Signatories to UN PRI since 2016
  • ESG well integrated into the investment process
  • Focus on qualitative analysis not ratings
  • No investments in certain sub sectors (see below)
  • Engage with issuers via collaboration with Sustainaltyics

Policy

Absalon Capital is a signatory to the PRI Principles and is an active asset manager that seeks to engage directly and through collaboration with issuers of corporate debt. The credit team's approach to managing environmental, social and governance (ESG) issues, seeks to measure and monitor adherence to international conventions as set out in the UN Global Compact Principles (UNGC) and other internationally relevant conventions. This is commonly referred to as a norms-based approach. The team's ESG research is primarily focused on the identification of downside risks, especially tail risk; not captured in accounting/financial data. We do not explicitly aim to deliver social/mission/value driven outcomes. 

Absalon Capital has chosen to actively exclude certain companies from our investable universe. These include the following:

  • Companies that manufacturer or are part of the production of controversial weapons.
  • Tobacco producers as we find it morally difficult to support a sector that is putting human health at risk while also leaving a future significant bill to the health care system.
  • Coal mining companies with no meaningful willingness or opportunity to diversify from coal.

External research is provided by investment banks, rating agencies and a dedicated ESG research provider (Sustainalytics). Each position is reviewed on a quarterly basis by the Group ESG committee which has the power to compel the team to divest from an issuer. The committee consists of the Group CIO, the Group Head of ESG and portfolio managers from across the group (both equity and fixed income managers).

Sustainalytics provides quarterly screening of our portfolios based on their Global Standards Screening (GSS). This scoring system provides an assessment of an issuers impact on stakeholders and the extent to which a company causes, contributes, or is linked to violations of international norms and standards. The GSS scope includes the United Nations (UN) Global Compact Principles, the UN Guiding Principles on Business and Human Rights, OECD Guidelines for Multinational Enterprises, and other relevant international conventions.

Sustainalytics GSS research seeks to identify the severity of impacts on stakeholders and/or the environment (the scale, scope, irremediability). The screening distinguishes between ‘Case Assessments’ and ‘Company Assessments’. Every violation (Non-Compliant status) or high risk of violation (Watchlist status) of global norms is related to a specific case (incident or series of related incidents). The overall GSS company assessment is simply the most severe of the underlying case assessments.

Companies are classified under 3 broad categories:

  • Compliant - no indications of severe violations of commonly accepted international norms related to human rights, labour rights, the environment, and business ethics
  • Watchlist - company is found to be causing or contributing to significant impacts on / harm to stakeholders and/or the environment, but for which all dimensions for Non-Compliant status could not be established or confirmed
  • Non-Compliant - egregious and severe violations of commonly accepted international norms related to human rights, labour rights, the environment, and business ethics

The Absalon Capital ESG Committee meets four times per year to discuss Watchlist/Non-Compliant issuers that do not comply with the principles and standards. Companies placed on the "Watchlist" may not have a confirmed violation either because not all details are confirmed or because the degree of violation is not yet confirmed. In situations where it is concluded that a company is found to be responsible for egregious and severe violations of UN conventions, the company will be placed on an exclusion list. In addition, if the company does not show any satisfactory progress in improving current practices, the company would also be placed on an exclusion list and the team would sell the position.

Engagement

If this engagement process identifies that a company is making insufficient progress to rectify the reach the company will be added to an exclusion list and the investment will be redeemed from the portfolio.

Carbon Risk

We use Sustainalytics Carbon Risk methodology to consider the degree to which the company value is at risk driven by the transition to a low-carbon economy. We analyze the carbon risk on two dimensions. Exposure - measure the degree to which a company is exposed to the carbon. Management - measure a company’s preparedness and track record in managing carbon risk. The Carbon Risk report allow the Team to evaluate current carbon risk factors and monitor the company commitments and actions to improve the carbon footprint.

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