Ethical Partners investment approach incorporates a formal sustainability assessment on a company by company basis (we call it the EPORA – The Ethical Partners Operational Risk Assessment). In addition to traditional financial metrics such as balance sheet and cash flow, the sustainability assessment further builds our understanding of any business.
As a stock picker we study companies for our own investment process and we also we have a strong commitment around engagement with companies by encouraging increased transparency and disclosure and better policy and practice.
Our engagement framework starts with our assessment of companies based on their publicly available documentation around issues such as preserving natural resources, supply chain risk assessments, business practice in high risk countries and various industry specific risks. This work develops our understanding of issues that have been disclosed by the company and our experience informs of us of risks that have not been addressed.More transparency usually equals more understanding. We believe the database of sustainability issues across multiple disciplines and over 200 companies that our team has painstakingly put together is one of the most comprehensive in the Australian market. Next, when we meet with companies, we take the time to address those issues -which forms the basis of our engagement. How companies respond can either increase our confidence in the investment case or damage it.
Our team has done over 300 company meetings in the last year and because the analysts do the EPORA assessment in house they are in a good place to ask the right questions. Our understanding builds with each engagement. Ethical Partners’ Sustainability Manager also regularly organises various specialists, leading sustainable (including unlisted) businesses and experts to come in and talk with the team.
We have to date encouraged management teams and Boards along the path of better reporting and business practices in key areas. We have also been supportive of the efforts that have been made where real progress has been made. The outcomes of our company engagement has been interesting. So far, we have been asked to benchmark companies versus peers, suggest KPIs for sustainability and assist with the direction of a company’s initial sustainability reporting. This is where Ethical Partners can help change transparency, disclosure and ultimately, business practice. We have also written to 24 companies directly to ask for additional details on business practices and policies around issues like preparedness for modern slavery legislation and supply chain disclosures, in addition to other issues.
In light of the rise in the importance of a company’s social licence to operate we are much more comfortable holding companies that are more thoughtful in their approach to customers, the environment and those people that are affected through their business activities. We believe that even simply raising sustainability questions alongside traditional financial and industry questions highlights that these issues are important to investors. As always, we look forward to further company engagement.
During October 2021 the Fund returned 1.09% versus the S&P/ASX 300 Accumulation Index of 0.10%, outperforming the market by 0.99%. An overweight position in Materials added to relative performance while and overweight position in Financials detracted from relative performance.
This World Children’s Day, 20 November, we recognise the devastating and disproportionate impact the climate crisis is having and will continue to have on children. As the most anticipated event of the year, COP26, finishes, it remains clear we have never needed more urgent action from government, business and society to respond to the climate crisis
During September 2021 the Fund returned -1.19% (after fees) versus the S&P/ASX 300 Accumulation Index of -1.89%, outperforming the market by 0.70%. An underweight position in Healthcare and an overweight position in Transport added to relative performance. Over the last 12 months the Fund has returned 36.03%, outperforming the ASX300 Accum Index by 5.17%.