Responsible Investing
Responsible Investing
Coolabah Capital Investments (CCI) considers that environment, social and governance (ESG) factors are important inputs into its investment process and have potentially notable consequences for investment performance, including, most notably, downside risks but also upside mispricing potential in terms of the value of those assets.
In general, CCI has found that credit rating agencies and the broader market often overlook the nuances of ESG factors when evaluating the credit quality and market value of fixed-income securities. CCI’s ESG integration philosophy is therefore to conduct proprietary internal analysis and research to capture these nuances. Indeed, CCI has published academic research exploring and quantifying the alpha and beta benefits from ESG inputs across different asset-classes and countries. Please click here for a copy of some of that research.
To best understand and capitalise on ESG risks and opportunities, CCI analyses, evaluates and compares ESG research prepared by industry-leading external providers such as MSCI and rating agencies when assessing a company’s resilience to material ESG risks. CCI targets a minimum portfolio MSCI ESG rating of ‘A’ to help ensure that our portfolios are resilient to ESG-related risks and unexpected shocks.
CCI has been a signatory of the UN-endorsed Principles for Responsible Investment (“PRI”) since 2021. CCI actively monitors the development of PRI principles and their adoption and support by rating agencies and regulators.
How ESG factors impact our investment decisions
CCI’s ESG activities are a mix of bottom-up (i.e. conducted at an issuer- or security-level) and top-down macro analysis and monitoring. A bottom-up approach provides us with maximum granularity and gives CCI comfort that ESG risk exposures are well managed. Top-down macro ESG analysis ensures that system-level ESG factors, such as changes in government policies or regulations, are well understood and factored into investment decisions.
CCI’s ESG activities broadly fit into three main categories: i) implementing our ESG exclusion criteria, ii) integrating ESG factors into our investment research process, iii) our stewardship and engagement activities.
i) Implementing ESG exclusion criteria:
For long direct investments in corporate issuers, CCI maintains several ESG revenue exclusions on non-democratic states and controversial sectors including tobacco growing and production, nuclear weapons manufacturing, fossil fuel extraction, gambling operations, and the adult industry. See the ESG and Stewardship Policy for more information.
ii) Integration of ESG factors into our investment research process:
For investees that pass our ESG exclusions, ESG research is integrated into CCI’s investment due diligence and monitoring process. While we can provide many case-studies of how ESG factor analysis has very materially impacted our decision-making process, a few examples of our ESG research considerations are outlined below:
- Environmental: weather-related risks; climate transition risk; pollution and environmental disruption.
- Social: political stability in countries of operation; labour, human rights and modern slavery; customer privacy and cybersecurity; workplace health and safety; diversity, equity and inclusion.
- Governance: board composition and capability; management remuneration, internal and external audit; distribution of equity; recent litigations, regulatory actions, and prosecutions.
iii) Engagement and activism campaigns:
To supplement ESG research integration, CCI engages — typically via emailed Q&A or direct meetings — with investee issuers to help gain a greater understanding of ESG risks and opportunities.
Separately, CCI carries out stewardship activism campaigns with other, sometimes non-investee stakeholders, such as ESG rating agencies, regulators, politicians and journalists. The purpose of this is to create positive system change that will maximise the long-term value of client assets.
EU's Shareholder Rights Directive II (SRD II)
The EU’s Shareholder Rights Directive II (SRD II) outlines transparency requirements for some key investment management factors including engagement, proxy voting, incorporation of ESG factors into the investment strategy, and alignment with beneficiaries’ interests.
Coolabah complies with the objectives of SRD II, as noted in this Responsible Investing section and Coolabah’s ESG and Stewardship Policy, which provide information on how Coolabah monitors the aforementioned key factors and engages with investee companies. Furthermore, we have adhered to the United Nations’ Principles for Responsible Investment since 2021.
