Arabesque Q3.17 SICAV-Global ESG Momentum Equity (the "Fund") - March 2021
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Arabesque Q3.17 SICAV- Global ESG Momentum
Equity (the “Fund”)
March 2021
[Type here] 1Summary of Fund’s Sustainability Approach The Fund is a globally-diversified pure equity strategy, that integrates sustainability and Sharia analysis with a rules-based investment process. ESG Characteristics promoted by the Fund Sustainability is a key pillar of the investment strategy. ESG indicators are embedded to enhance the information environment and to actively allocate capital responsibly. The Fund has a holistic approach to sustainability and as such it considers all dimensions (environment, social, governance), companies' behavior (alignment with UN Global Compact) and revenue generating activity. Proportion of Investments that Adhere to ESG factors The Fund is 100% aligned with its sustainability objectives, as it is fully invested and only invests in publicly listed equities sourced from the Arabesque Investment Universe (please see below information on the Universe). The Fund does not make use of financial derivatives. The Fund follows a bottom-up investment process, driven by sustainability and financial data. There are no specific targets for country or sector allocations. However, there is a limit of 25% allocation to individual sector to avoid concentration in single sector. No Sustainable Investment Objective The Fund promotes certain environmental and social characteristics within the meaning of article 8 of SFDR but does not have a sustainable investment objective. Investment Strategy to Achieve ESG Characteristics The Fund applies a rules-based investment approach that combines sustainability with Fundamental and quantitative stock selection processes. The Arabesque Investment Universe is determined using a rules-based bottom-up selection process based on sustainability scores provided by Arabesque S-Ray. Arabesque S-Ray is used to produce proprietary ESG scores, which incorporates sector-specific assessments of company performance across financially material ESG issues, based on more than 200 underlying parameters. It then excludes the bottom 25% per industry. In addition, companies in the bottom quartile but [Type here] 2
with improved ESG scores over two consecutive quarters remain eligible for the universe. This allows for the capture of ESG-momentum trend. Secondly, Arabesque S-Ray is used to produce proprietary GC Score, which captures the alignment of a company to the United Nations Global Compact principles on human rights, labour rights, the environment, and anti-corruption. It excludes companies with the lowest scores across the universe (bottom 5%), reflecting a poor alignment with the UN Global Compact. An additional step, the screening process excludes companies that generate more than 5% of their revenue from alcohol, tobacco, gambling, weapons or any revenue from coal extraction. In addition to the sustainability screening, the screening process has an additional filtering at the universe construction based on AAOIFI 21 guidelines. The Fund applies a rules-based approach to portfolio construction and trading activities. As a quantitative strategy, the stock selection is determined by a bottom-up, systematic and disciplined method vested within its financial models. As such, the ESG metrics are integral part of the investment process and are automatically embedded. Arabesque S-Ray’s ESG integration involves explicitly and systematically integrating Environmental, Social and Governance (ESG) related considerations in its Universe construction. The assessment of Governance practices is part of the ESG and UN GC scores. Moreover, the Fund’s investment manager (Arabesque) has partnered with ISS Governance to execute proxy voting on its behalf. The Fund follows the ISS Sustainability Voting Policy that are targeted towards voting and responding to issues through the lens of ESG. Arabesque dedicates time and resources towards reviewing ISS research in order to actively cast aligned votes on behalf of investors. Voting in line with these Policy and maintaining key stances on best practices upholds its belief that material ESG factors affect companies’ risk profiles and long-term financial performance. Monitoring of ESG Characteristics ESG considerations are fully integrated in the model, constantly monitored by the system and validated by the portfolio managers. The Fund receives updated S-Ray score on daily basis. On a daily basis the Fund reviews the new information but no discretionary decisions are taken. [Type here] 3
Methodology to measure ESG Characteristics
The E/S dimensions are captured within the ESG and UN GC score. Throughout the investment process, the
Fund uses proprietary sustainable scores produced by Arabesque S-Ray. The detailed methodology can be
found on: http://arabesque.com/docs/sray/S-Ray%20Methodology%20v260.pdf
The Fund uses the below two Arabesque S-Ray scores to assess companies:
1. ESG Score: it measures how well publicly-listed companies are managed. The ESG (Environmental,
Social, Governance) score identifies sustainable companies that are better positioned to outperform
over the long term, based on the principles of financial materiality.
2. GC Score: it assesses a company’s performance against the 4 core principles of the United Nations
Global Compact (UNGC), human rights, labour rights, environment, and anti-corruption.
The ESG and UN GC characteristics of the product is reported in the monthly factsheets.
Due Diligence on Underlying Assets
Arabesque S-Ray is a proprietary tool. Through machine learning and big data, it systematically combines over
250 environmental, social and governance (ESG) metrics with news signals from over 30,000 sources
published in over 170 countries. Using this quantitative approach to analysis and advancements in technology,
its methodology is designed to minimise human biases and provide increased coverage on a vast global
universe of companies. S-Ray provides increased transparency into a company’s long and short-term risks and
opportunities by analysing its corporate DNA through a range of sustainability lenses which include GC
Scores, ESG Scores and preferences Filter which is a search tool that allows anyone to check the business
involvements against personal values.
Engagement Policies
Whilst the responsibility for proxy voting is delegated to ISS Shareholder Service provider, the investment
manager of the Fund (Arabesque) is currently reviewing the list of suitable engagement providers. Arabesque
follows a quantitative strategy across all of its investment products and is committed to responsible investment,
outside of engagement. All of Arabesque's S-Ray ESG and GC Scores are available to the public, helping nudge
companies towards improving their scores. With S-Ray’s public scoring, this engages the public, investors, and
companies themselves to improve performance on ESG metrics.
[Type here] 4Data Source for ESG
Arabesque S-Ray gathers raw information from a variety of sources, such as company reports, public
information, to create proprietary scores. While they do not disclose the actual underlying sources, they
organise all data in three main groups at this level:
1. Report-based metrics.
2. News-based controversies.
3. NGO-based activity.
Limitations to Methodology and Data
The Fund is concerned only with equity investment for which it receives ESG ratings from Arabesque S-Ray.
Assessment of sustainability risks is complex and may be based on environmental, social, or governance data
which is difficult to obtain and incomplete, estimated, out of date or otherwise materially inaccurate. Even
when identified, there can be no guarantee that these data will be correctly assessed.
Reference Benchmark
The Fund uses MSCI ACWI as benchmark. The reference benchmark is not aligned with the environmental
or social characteristics promoted.
[Type here] 5You can also read
