Values-based screening policy

As the guardians, not the owners, of assets that we manage we seek to ensure that our portfolios are aligned with our clients’ objectives, values and beliefs. One way that we do this is through the implementation of values-based screens.

Values-based screens seek to identify companies that our clients wish to avoid and exclude them from our investment universe. There are three types of values-based screens that we implement in the management of our clients’ assets:

• Product-based screens. These identify and restrict companies based upon the products that they produce or the services that they offer. An example of a product-based screen is one that restricts companies from investment if they are a tobacco producer.
• Conduct-based screens. These apply to all companies, irrespective of what they produce, and target companies that fall behind expected standards of behaviour. An example of a conduct-based screen is one that restricts companies from investment if they have a poor environmental, social and governance (ESG) rating provided by an external rating agency.
• Engage–divest screens. These screens are designed to improve company policies and practices but also lead to restriction if no progress is made. An example of an engage–divest screen is a company that faces an allegation of non-conformance with the UN Global Compact. To correct the issue, companies are encouraged to remediate the damage caused and/ or develop policies and processes to avoid a recurrence of the issue through engagement.

The companies are divested from however, after a period of time, if sufficient changes are not made. Each of these types of values-based screens are calibrated in two ways based on the level of client concern:

• ‘Any involvement’ screens. These restrict companies if they have any involvement in an activity proscribed by our clients. As these are implemented irrespective of the size of the companies’ exposure to the activity they are usually reserved for the most problematic issues. An example of an ‘any involvement’ screen is restricting companies that have exposure to the production of cluster munitions.
• ‘Materiality-based’ screens. These restrict companies if the restricted activity makes up more than a specified proportion, commonly 10%, of their entire revenue. The aim of a materiality-based restriction is to effectively target companies who focus on the production of prohibited products. An example of a materiality-based restriction is one that restricts companies if they generate more than 10% of their revenue from the production or retail of alcoholic drinks. This identifies and restricts alcohol producers, like Diageo, from investment whilst leaving diversified retailers, like supermarkets, eligible.

For details on how we create and apply our screens, the full policy is available to download.

October 2024