Environment, Social and Governance (ESG) policy (extract)

Environment, Social and Governance (ESG) policy (extract)

DNR Capital is committed to effectively managing Environment, Social and Governance (ESG) issues so that risks and opportunities are identified and properly assessed.

We recognise that companies with good ESG practices can enhance shareholder returns, and ESG factors are woven into day to day investment management decision making and is the responsibility of the entire investment team.

Why is ESG important?

We believe that a company’s approach to managing ESG issues can have a meaningful impact on the company’s long term viability (profits) and success (reputation). That is, companies that act in a responsible way are likely to perform better over the long term.

We believe that factoring ESG into the investment process leads to outperformance because ESG tail risks are often not analysed and priced effectively by the market. Companies that recognise the benefits of a good ESG policy are better placed to manage tail risks such as environmental damage, workplace accidents and scandals.

In addition, there are some positive factors that create a virtuous cycle such as improved employee conditions which will drive retention, lead to better customer service and hence profits; and efficiency gains from reducing waste that not only leads to saving resources but also money.

Furthermore, we believe that including ESG issues in our investment process is consistent with our objectives as an active investment manager. At DNR Capital, our ESG considerations, as an investor include:

Environment

  • environmental policies including commitment to monitoring and publically reporting on these policies
  • commitment to address product/ service impact, and
  • strategic moves towards sustainability.

Social

  • systems for managing health and safety
  • policies promoting employee training and development, and
  • involvement in charitable/community work.

Governance

  • global corporate governance practices such as:
    – having a separate chair and chief executive
    – having more than 33% of the board as independent non-executives, and
    – having an audit committee, and the majority of whose members are independent non-executives and disclosure of the remuneration of company directors.
  • compliance with the ASX Corporate Governance Principles and Recommendations as published from time to time.

As part of our commitment to responsible investment practices, DNR Capital operates a monthly SRI Committee where broad issues are discussed, and which is responsible for overseeing the ESG database.  The SRI Committee oversees security selection and provides guidance in regards to matters of ethical judgement and ensures the Socially Responsible Investment portfolio adheres to the screening methodology.

Key ESG factors considered during the DNR Capital screening process

DNR Capital evaluates and scores securities on ESG considerations (including climate-related risk). This score is derived from its assessment which uses information from external data provides as well as its own research and direct corporate engagement.  The ESG score forms part of a broader assessment of a business’s overall quality attributes using DNR Capital’s ‘quality web’ analysis.

Climate Risk

Our Policy confirms the key ESG factors considered by DNR Capital during the wider investment screening, decision making and portfolio construction process and includes specific reference to climate change.

DNR Capital takes climate risk into account when undertaking investment analysis to identify risks that may impact future financial performance. It should be noted that decisions about whether to buy, hold or sell investments are based primarily on traditional financial analysis, however DNR Capital has access to climate-related data through external service providers and focusses on a business’s disclosures around:

  • Governance
  • Strategy
  • Risk Management, and
  • Metric and Targets.

DNR Capital is a signatory both to the Carbon Disclosure Project (CDP) and the Principles for Responsible Investing (PRI). DNR Capital is also a member of the Responsible Investment Association Australasia (RIAA).

 

 

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