While avoiding unsuitable companies and finding good investment opportunities in the leaders is our priority, our company engagement and investment process (via the EPORA) also helps identify which companies have the capability to become future ESG leaders.

Our proprietary Ethical Partners Opportunity and Risk Assessment (EPORA) considers such issues as where a company does business, what products or services they sell, their human rights policies and their environmental impact. These are key considerations for us in addition to our strict assessment of a company’s balance sheet, cash flow and our assessment of company management. This analysis is conducted in-house via the use of over 600 different and diverse data sources.

The Ethical Partners Australian Share Fund has also adopted a Net Zero Emissions by 2050 target. We will transition the Fund via the Ethical Partners Carbon Alignment Process (EPCAP). This is our proprietary process whereby we track carbon emissions by company, have a record of a company's emissions reduction targets and gain an understanding from a portfolio perspective of what changes may be needed over time to reduce carbon emissions.

The EPORA is our assessment process that results in the exclusion of companies unsuitable for investment in the Ethical Partners Australian Share Fund if they are deemed high risk, the identification of companies that are leaders in ESG and indicates what changes can be advocated for at the vast majority of other companies in order to improve ESG practices.

Once this analysis is complete, the important process of engagement with board, management and sustainability teams of companies begins, in which Ethical Partners actively advocates for change. We have engaged with hundreds of companies on over 300 ESG issues in the past two years. We also collaborate and advocate for change in the wider legislative, NGO and shareholder community, as well as through shareholder voting. 

Our approach to ESG can be summarised as: 

-  Avoiding the worst ESG performers (excluded from the Ethical Partners Australian Share Fund investment universe). These companies are deemed high risk from a human rights perspective, in areas of governance and environmental performance.  This is a qualitative process determined in-house.

 - Owning shares in the ESG leaders (where valuation and the financial case is appropriate). ESG leaders are identified as "low risk" in many of the ESG assessment categories in the EPORA. This is a qualitative process determined in-house.

 - Advocating for change in many of the balance of companies that are not excluded or are not ESG leaders. Details of our engagement efforts are outlined in our Engagement Report available on this website.

For each company under coverage Ethical Partners, via its proprietary approach, assesses each category under the EPORA and assigns a low, medium or high-risk rating. A company that is assigned a high-risk rating in any EPORA category cannot be owned by the Fund (ie is excluded). These risk ratings are frequently reassessed as information becomes available to Ethical Partners changes.

As an initial negative screen, the Ethical Partners Australian Share Fund will exclude:

- Companies that have first derivative exposure to alcohol, gambling,  tobacco, uranium, weapons, predatory lending and fossil fuels.  

Ethical Partners defines a first derivative exposure as:

-        Direct and/or owned operations in the gambling industry

-        Direct or owned primary  production or sale of alcohol.

-        Direct or  owned primary production or sale of uranium.

-        Direct or owned primary  production or sale of weapons.

-        Direct or provided  predatory lending.

-        Direct or owned primary production  and sale of fossil fuel. 

We define the threshold on these exclusions as a company having >1% of their net profit after tax (or an equivalent disclosed  measure) generated in these areas. Typically it will be zero.

We note that  the Fund may own companies with  what we define as having second derivative exposures to these exclusions  listed above.

For example, the Fund may own  a company that produces agricultural commodities used by the alcohol supply  chain, or a REIT that has an alcohol retailer within their shopping centre. We  also note that the Fund is likely to hold a second derivative exposure to companies  who still utilise some fossil fuels in the course of their normal business  activities. We may also hold a bank that is on the pathway to  decarbonisation, but at this point retains some fossil fuel loan exposures. We  also note that these second derivative company exposures will further form an  important factor in the EPORA risk and opportunity analysis and investment  screening, and engagements with these companies wherever possible.

The Fund is transparent that  this is a realistic requirement in order to build a diverse portfolio of companies across the Australian share market while still being true to label  regarding exclusions.  

Geographic risk

The EPORA screen will also exclude all companies that have substantive operations in higher risk geographies (defined as those that rank in the bottom 30% of Transparency International’s Corruption Perceptions Index). This is defined  as a company having >15% of their net profit after tax (or an equivalent disclosed measure) generated in these areas. Typically, it will be zero.