ESG is a crucial element of the Salt Funds Management investment decision-making process.
Salt Funds Management (Salt) is a strong believer in the merits of embedding comprehensive Environment, Social and Governance (ESG) analysis into its investment process. This incorporates both the careful analysis of the sustainability of a company’s business model and strategy as well as actively engaging with company directors, executives, and other stakeholders.
Salt has a fiduciary duty to clients to consider all types of risks associated with the companies invested in, including environmental, social, and governance risks. Therefore, ESG factors comprise part of Salt’s investment philosophy, and ESG risks and opportunities are incorporated into Salt’s investment analysis process. As active owners, the Salt team prioritises engagement with stakeholders on an ongoing basis.
The Salt Investment Committee is a delegation of the board and is responsible for oversight of the investment process, which integrates ESG principles into the decision-making process.
Salt’s investment philosophy is based on the belief that superior investment outcomes can be achieved by investing in companies that are aware of and plan for the sustainability challenges they face and then by active ownership and engagement as a shareholder. A strong “ethical compass” is a key personal characteristic required of anyone recruited into the Salt team. As such ESG fits naturally into our overall investment thinking and philosophy
It follows that ESG factors are fully integrated into the Salt investment process. Active ownership is a particular feature of Salt’s operating model.
The Salt sustainability strategy builds on the core Salt investment process in order to create a portfolio intended to generate attractive (risk-adjusted) returns over the long term by both mitigating the risk associated with poor ESG standards via exclusionary screens and focusing on those companies deemed best-in-class in terms of their management of ESG factors, as well as investing in companies that can benefit from the opportunities created by societal attempts to mitigate the risks associated with likely changes in environmental conditions and societal norms.
Specific ESG considerations include, but are not limited to;
Climate change policies / the pricing of externalities (eg; carbon emissions trading schemes)
The availability of finite resources/security of corporate supply chains
Pollution and waste
Opportunities driven by environmental pressures - for example, in renewable energy / clean technology etc.
The emerging international consensus on human rights and labour standards has implications for companies operating globally
Shifting demographics - in particular, ageing populations in Australasia
Changes in the regulatory environment
Societal trends - changing fashions or tastes leading to the emergence of new markets or shifts in existing ones.
The increasing reach of the media has amplified demands for corporate accountability, tying responsible behaviour to a company's brand. Salt analysts attempt to identify whether corporate management teams are at least aware of such factors and have processes in place to manage them and mitigate any potential (reputational) risks
Are the interests of shareholders (and other stakeholders) properly aligned with those of the management team?
More specifically, does a company have appropriate management structures and incentives in place?
Signatory to the Principles for Responsible Investment (PRI)
Salt is a long-standing signatory to the United Nations-sponsored Principles of Responsible Investment and as such has committed to the following principles:
We will incorporate ESG issues into investment analysis and decision-making processes.
We will be active owners and incorporate ESG issues into our ownership policies and practices.
We will seek appropriate disclosure on ESG issues by the entities in which we invest.
We will promote acceptance and implementation of the principles within the investment industry.
We will work together to enhance our effectiveness in implementing the principles.
We will each report on our activities and progress towards implementing the principles.
Salt is the manager of the Carbon Fund ( www.carbonfund.co.nz and NZX ticker 'CO2' ) that invests in greenhouse gas emission units and as such has a keen interest in the potential impact of climate change. Salt has been actively engaging with companies to reinforce the importance that they are prepared for the impact of climate change and to have tangible strategies in place.
The Financial Stability Board, at the behest of the G20 Finance Ministers established the Task Force on Climate-related Financial Disclosures (TCFD) tasked with helping to identify the information needed by investors to appropriately assess and price climate-related risks and opportunities. Whilst these measures are voluntary, Salt is supportive of these disclosures and their widespread adoption.
Salt has a long-standing and generally successful track record of engagement with company management teams, both at the executive and Board level. Our preferred approach in this area is one of active engagement where we share with companies our philosophy and approach to ESG matters.
We believe the key to engagement is constructive and private communication with Board members or company executives where we can seek to encourage positive change. Where engagement fails to resolve concerns within a reasonable timeline, we will seek to escalate matters either ourselves or via contact with other institutional investors in an attempt to strengthen our negotiating position via collaboration.
Voting against company proposals is a vital tool to address concerns.
Salt prefers to constructively engage with companies to resolve concerns and considers “going public” and/or divestment as a last resort when engagement attempts are unsuccessful.
Salt is an active investor and has been at the forefront of active engagement in New Zealand.
We strive to be strong advocates for shareholder rights and transparency.
Salt’s voting decisions are made in-house and based on our experienced investment team’s view of the environmental, social and governance issues.
Salt votes on all resolutions and maintains a record of these votes.
Salt reports ESG activities to clients quarterly. These reports communicate new engagements with companies, the progress of ongoing engagements, and proxy voting decisions, outcomes, and voting rationale.
As part of Salt’s fiduciary duty on behalf of clients, we look at our entire mandated investment universe to identify attractive investment opportunities. As a result, Salt does not apply a general screening/exclusions policy (except as prescribed by a client) across all portfolios, instead, ESG factors are integrated into the investment process to arrive at better investment decisions.
For clients with specific sustainability preferences, exclusion lists are adhered to and governed accordingly.