Controversial Industries Policy

February 2024

Introduction

As a sustainable investment fund, our core mission is to identify and invest in companies that are leading the way in driving social and environmental change.

Our investment strategy inherently involves excluding companies that, in our assessment, contribute to societal or environmental harm. To systematically evaluate and measure a company's impact, we utilize the Impact Management Project's 5 Dimensions of Impact, a comprehensive framework that classifies companies on a spectrum ranging from those causing harm to those contributing to solutions.

We acknowledge that no company is without its flaws and that the impact on various stakeholders can differ significantly. Therefore, we adopt a balanced approach, thoroughly considering both the positive and negative impacts of potential investments.

However, there are certain industries and behaviours that render companies incompatible with our investment criteria. Consequently, we explicitly exclude such companies from our portfolio. If an investment does not meet its exclusion criteria, we will review the investment, and without a justifiable reason for maintaining the investment, we will divest the position as required as soon as practicable given the circumstances.

We will disclose in this document those few companies that do not meet exclusion criteria but that we believe have a justifiable reason for maintaining investment. We will also disclose and provide an explanation of those investments that fall within the threshold limits.

Controversial Industries and Exclusions

Controversial Weapons and Nuclear Weapons Companies

Reason for Negative Screen

Controversial weapons and nuclear weapons companies are often viewed as harmful to society due to their involvement in manufacturing arms that can cause indiscriminate destruction and widespread human suffering. The production and proliferation of such weapons pose significant ethical concerns, as they are designed to inflict maximum damage and can lead to long-term environmental contamination, such as nuclear fallout, which has devastating effects on human health and the ecosystem. The presence of these weapons also escalates global tensions, contributing to an arms race that undermines international peace and security efforts.

Our Thresholds

  • ELMRI has zero tolerance for companies that manufacture or produce these weapons.

  • ELMRI has zero tolerance for companies that distribute these weapons.

  • ELMRI has zero tolerance for companies that trade or supply key components of these weapons.

Exceptions

No current exceptions.

Tobacco, Tobacco-Based Products, and Nicotine Alternatives Companies

Reason for Negative Screen

Companies involved in the production and sale of tobacco, tobacco-based products, and nicotine alternatives are linked to a wide array of social and public health issues. These products are highly addictive and are leading causes of diseases such as cancer, heart disease, and respiratory illnesses, resulting in millions of deaths annually worldwide. The tobacco industry's marketing practices have also been criticized for targeting vulnerable populations, including minors and low-income communities, perpetuating health inequalities. Furthermore, tobacco farming and production processes contribute to environmental degradation through deforestation, water pollution, and the use of harmful chemicals.

Our Thresholds

  • ELMRI has zero tolerance for companies that manufacture tobacco, tobacco-based products, and nicotine alternatives.

  • ELMRI has a 10% revenue threshold for companies that sell or distribute tobacco, tobacco-based products, and nicotine alternatives.

Exceptions

No current exceptions.

Fossil Fuel Extraction Companies

Reason for Negative Screen

Fossil fuel extraction companies are key contributors to environmental harm, primarily due to their significant role in accelerating climate change. The extraction, processing, and combustion of fossil fuels release large quantities of greenhouse gases, such as carbon dioxide and methane, leading to global warming and its associated severe weather events, sea-level rise, and biodiversity loss. Additionally, practices like fracking and oil drilling can result in water contamination, air pollution, and habitat destruction, further endangering wildlife and human communities alike.

Our Thresholds      

  • ELMRI has zero tolerance for companies that explore, drill and extract fossil fuels.

  • ELMRI has zero tolerance for companies that process fossil fuels.

  • ELMRI has no restrictions on companies that provide services to the production, distribution and trading of fossil fuels providing those services helps improve the sustainability of the operations. Otherwise, there is zero tolerance.

  • ELMRI has no restrictions on companies that generate electrical power from fossil fuels, providing a 2050 net zero emission target and strategy to close by 2030. Otherwise, there is zero tolerance.

Exceptions

ELMRI is invested in Orsted, a Danish energy and utilities company that has transformed remarkably from its origins as a fossil-fuel-intensive entity to a global leader in green energy and now one of the most sustainable companies in the world. Following orders from the Danish authority, the company was mandated to continue using coal until 30 June 2024. Orsted is one of the few companies in the world with an authentic transition plan and commitment and has consistently delivered on its sustainability goals. We therefore believe staying invested in the company is important and shows how capital can be used to support the global energy transition.

ELMRI is invested in Brookfield Asset Management. Brookfield is a global asset management company widely recognized for its diversified portfolio of assets across various sectors, including real estate, renewable energy, infrastructure, private equity, and credit. ELMRI estimates that a small percentage of assets managed by Brookfield are invested in traditional energy. However, the Brookfield Global Transition Fund emphasises their commitment to investing in the net-zero economy and the energy transition, suggesting a strategic shift from traditional and controversial industries to more sustainable and renewable energy sources. We continue to engage with the company on this transition plan.

Gaming and Gambling Companies

Reason for Negative Screen

Gaming and gambling companies, while providing entertainment, pose several societal risks, primarily due to the potential for addiction among participants. Gambling addiction can lead to significant personal and social issues, including financial ruin, mental health problems, and family breakdown. Furthermore, these industries often contribute to social inequality, as they can disproportionately affect economically disadvantaged individuals who may see gambling as a way to improve their financial situation. The normalization of gambling through widespread advertising and the accessibility of online platforms also raises concerns about the impact on young people and the potential for increasing problem gambling rates.

Our Thresholds

  • ELMRI has zero tolerance for companies that manufacture gambling equipment or operate casinos or lotteries.

Exceptions

ELMRI is invested in Brookfield Asset Management. Brookfield is a global asset management company widely recognized for its diversified portfolio of assets across various sectors, including real estate, renewable energy, infrastructure, private equity, and credit. ELMRI estimates that a small percentage of assets managed by Brookfield (<0.5%), is invested in gaming and gambling companies. However, the Brookfield Global Transition Fund emphasises their commitment to investing in the net-zero economy and the energy transition, suggesting a strategic shift away from traditional and controversial industries and towards more sustainable and renewable energy sources. We continue to engage with the company on this transition plan.

Conclusion

Our policy on controversial industries and negative screening is a cornerstone of our commitment to responsible investing, reflecting an understanding that the landscape continually evolving. We recognize the importance of regularly monitoring and reviewing what we deem controversial, ensuring our investments align with the most up-to-date environmental, social, and governance (ESG) criteria. Shifts in societal norms, technological progress, and changes in regulatory environments necessitate a flexible and responsive approach. This approach allows us to avoid risks associated with controversial sectors and seize opportunities that promote positive environmental and social outcomes.

At times, the most impactful contribution investors can make is supporting companies in their transition towards sustainability. Encouraging and investing in firms that are making genuine efforts to pivot from controversial practices to sustainable operations is a vital part of our strategy. This not only aids in the global transition to a sustainable economy but also aligns with our goal of creating a portfolio that is resilient, forward-looking, and reflective of our investors' values.