Sustainability Statement
Company Background
Established in 2019, Elm Responsible Investments is a research-driven, long-term investment manager guided by an ethos of sustainable practices. From the very first day of operations, our approach has been ‘sustainability-first’, focusing on environmentally, socially and economically responsible and sustainable investing. Our focus is successful and profitable investing in ethical and sustainable global and domestic publicly listed companies, directing our capital and expertise to companies making a positive impact on the world.
Guided by the 17 United Nations Sustainable Development Goals (UN SDGs), we invest in a concentrated portfolio of high-quality local companies that are striving for a more sustainable future. With a differentiated and unique sustainability and investment process, our sustainability-first culture sets us apart from traditional investment managers. We are considered in everything we do: from who we choose to bank with, the suppliers we engage, to the way we manage our clients’ capital, our approach supports a lasting and positive impact on the future.
Our Philosophy
We see ourselves as having two objectives:
Upholding our fiduciary duty to our clients, and to manage their capital responsibly for long-term returns.
Upholding an investment approach that considers all stakeholders – customers, suppliers, environment, society – and investing to facilitate the transition to a more sustainable future.
We are nearing a tipping point on many global issues such as climate change and inequality. While government policies have a major impact on these issues, companies – particularly large and publicly listed ones – have a wide-reaching impact on society, and have the ability to shape the sustainability landscape, both positively and negatively.
Our goal is to help steer the world towards a more sustainable future by investing in companies that are facilitating this transition. We support a new investment framework, one that doesn’t prioritise short-term profits, but rather considers all stakeholders including customers, staff, the environment, and society, as well as shareholders.
We believe in generating financial returns and rewarding entrepreneurs by investing in companies working toward a sustainable future through the products and services they sell, their investments, and their corporate policies. We identify companies making progress on the United Nations Sustainable Development Goals and support their path to growth as they expand their sustainable business operations.
At Elm Responsible Investments, we seek to invest in companies making a positive impact (now and for the future) that also represent excellent long-term investment opportunities.
Our Sustainability Framework within the 7 Responsible Investment Strategies
The Responsible Investment Benchmark Report by Responsible Investments Association Australasia (RIAA) and the Global Sustainable Investment Review, outlines 7 strategies within the broad investment category of Responsible Investments:
ESG Integration was the most popular strategy in Australia in 2021, and considers environmental, social and governance factors in the investment process. ESG Integration attempts to convert ESG risk into investment risk, and if there is still sufficient investment return on offer to compensate for the total risk, then the investment may proceed.
Corporate Engagement & Shareholder Action covers shareholders utilising their voting rights and other powers as well as engaging with management and the board to instigate a certain outcome or corporate behaviour.
Negative Screening explicitly excludes certain sectors or companies from the portfolio’s investable universe based on ESG criteria. This ensures that the portfolio is never invested in companies that are causing harm.
Norms-Based Screening involves screening investments based on compliance with international convention, provided by organisations such as the UN, OECD and ILO. This ensures that portfolio companies adhere to minimum global standards on sustainability matters such as labour, environmental and supply chain policies.
Positive Screening can be considered the opposite of Negative Screening, and involves explicitly including certain sectors or companies into the portfolio based on ESG criteria. This is also known as Best in Class Screening.
Sustainability Themed Investment involves investing only in certain sustainability themes such as climate change, renewable energy and water safety.
Impact Investing involves targeted investments with a specific objective or outcome in mind.
Our objective to facilitate a more sustainable future for all requires backing companies that are making a positive change (Positive Screening), withdrawing capital from those that are causing harm (Negative Screening) and also supporting companies that are trying to genuinely change their business practices for the better (Corporate Engagement & Shareholder Action).
We incorporate ESG Integration (with a particular focus on Governance) during the investment analysis and portfolio construction process, as companies with high ESG scores are more compelling investments which tend to have lower investment risk.
Implementation Levels of the 7 Responsible Investment Strategies
| Strategy | Usage Level | Comments |
|---|---|---|
| ESG Integration | x | We don’t explicitly use ESG Integration in our Sustainability Framework, but consider it during our investment analysis process. We believe that companies that score highly also tend to have lower investment risk. |
| Corporate Engagement & Shareholder Action | ✓ | We meet with company management and boards regularly to discuss various topics, including but not limited to sustainability matters. Our level of engagement on sustainability increases when a company is looking to improve their sustainability practices, and we invest in support of that change. We also may vote and exercise our shareholder rights on ESG and other matters. |
| Negative Screening | ✓✓✓ | We explicitly exclude companies and sectors such as Gaming, Tobacco, Weapons, Fossil Fuel Extraction. Our process also implicitly excludes these companies and sectors as they tend to cause harm to stakeholders, and act as a blockage to the achievement of the UN SDGs. |
| Norms Based Screening | x | We don’t explicitly adopt Norms Based Screening, but instead focus on the UN SDGs and screen for companies that are contributing positively to the achievement of those goals. |
| Positive Screening | ✓✓✓ | We explicitly include companies and sectors that are contributing positively to the achievement of the UN SDGs. We don’t consider just the products and services that a company sells, but we also consider their internal policies on issues such as investment, supply chain, HR. |
| Sustainability Themed Investment | x | We focus on UN SDGs as opposed to any one sustainability theme. |
| Impact Investing | x | We invest in listed companies that are contributing positively to the UN SDGs. We don’t invest with a specific and narrow outcome in mind. |
Our Sustainability Framework in Detail
We take a holistic view of how companies impact all stakeholders.
We first use a quantitative screening tool to analyse both the positive and negative contributions companies are making to the UN SDGs. A quantitative screen allows us to analyse vast amounts of data in a short timeframe, but we lose the qualitative context associated with the data. Guided by quantitative results, we then conduct a more detailed analysis, focusing on the targets and indicators of the UN SDGs and Impact Management Project's classification system.
Following the Impact Management Project’s classification system, we strive to classify each company as:
Causes Harm
Acts to Avoid Harm (A): Minimum obligations and requirements a company has to all stakeholders including their customers, staff, the environment and shareholders are met. These companies mitigate operational and reputation risk, but do not contribute to positive change. These companies are usually managing their ESG risk.
Benefits Stakeholders (B): These are companies that are actively benefiting stakeholders in addition to avoiding harm. Such companies may be offering an attractive working environment for staff, or converting their energy usage to renewable energy. B companies are generally motivated by financial out-performance over the long term, and often referred to as pursuing ESG opportunities.
Contributes to Solutions (C): These are companies that are contributing to solutions using their full capabilities. They tend to focus on finding solutions to pressing problems impacting the most under-served individuals.
We classify each company by assessing the experience or effect stakeholders (consumers, employees, suppliers, the environment and broader society) have had and will have by engaging with the company, or as a consequence of the company. We determine whether that experience or effect is directly contributing positively or negatively to the UN SDGs, and attempt to quantify that contribution. We then score the company along the Impact Management Project’s classification system.
Ideally we would invest exclusively in C companies making the biggest contribution to the UN SDGs. These companies, however, often represent higher investment risk as they tend to operate in difficult geographies addressing complex issues. We also need to ensure investment returns are acceptable, and build a balanced portfolio to deliver on our fiduciary duty to our clients. We construct profitable portfolios by investing primarily in B and C companies, as well as A companies, without the need to invest in companies that cause harm.
Sustainability from the Investor’s Perspective
Investment management fees affect shareholder returns, which is particularly important given expensive active fund managers have generally under-performed. We charge a base management fee that is competitive, skewing our remuneration to performance-based fees.
Apart from a robust investment management process, we also focus on the legitimate value creation that comes from long-term investing rather than short-term trading. We invest only in companies we believe will generate superior returns over the long term. This approach benefits our clients through lower taxes, lower transaction costs and compounding returns.