About Us

Sustainability Risks Policy

Scope

J O Hambro Capital Management (‘JOHCM’) is a performance-led active investment management firm, offering its institutional and wholesale client base differentiated regional equity, global equity, multi-asset and fixed income strategies.  

The EU’s Sustainable Finance Disclosure Regulation (‘SFDR’) will require firms such as JOHCM to provide certain disclosures to clients in respect of how sustainability risks are integrated into its business and its financial products.  This Sustainability Risks Policy (‘Policy’) sets out JOHCM’s overarching philosophy, investment practices and governance procedures as they relate to the management of sustainability and environmental, social and governance (‘ESG’) risks within its investments.


Introduction

JOHCM operates a multi-boutique structure which offers its experienced fund managers the ability to be independent in their thinking, maintain autonomy over their investment approaches and be accountable for the outcomes.

JOHCM's fund managers have complete investment freedom, subject to risk criteria and investment restrictions – there is no ‘house’ view on economies, markets, sectors or stocks. This leads to a diversity of views and approaches across its investment teams and insulates its investment teams from the dangers of ‘groupthink’.  A combination of this intellectual latitude, transparent pay schemes and the absence of bureaucratic practices associated with many larger fund management companies has led to extremely low turnover amongst JOHCM's investment professionals. 

JOHCM fundamentally believes that decision-making around sustainability and ESG considerations should remain with the fund managers as part of their overall management of their strategies.  Each of our investment teams continues to evolve its own approach to integrating ESG and sustainability considerations into their investment process and stewardship practices as they see most relevant to their respective strategies.  This autonomy and diversity of approach is a key strength in our business and plays an important role in our ability to deliver the investment outcomes and solutions that meet the needs of our clients.  

 

Philosophy

As an investment manager, JOHCM is committed to acting and investing responsibly, considering the full range of risks an investee company may face. This includes ESG and sustainability risks which have the potential to be  material to the value of our clients’ investments. 

Under SFDR, “sustainability risk” means an environmental, social or governance (“ESG”) event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of an investment.  This Policy therefore approaches sustainability risk from the perspective of the risk that ESG events might cause a material negative impact on the value of JOHCM’s clients’ investments.

A foundational belief of our philosophy is that integrating consideration of ESG and sustainability risks into financial analysis enhances investment decision-making and can improve long-term risk-adjusted returns for our clients. As such, we have a responsibility and interest in doing so.   

Further, we believe that if current trends continue where regulatory changes and market dynamics are influenced by societal objectives around sustainable economic development, then ESG and sustainability risks will become increasingly material to investments.  Consequently, our understanding of how such risks may impact upon individual investments, as well as financial markets more broadly, needs to evolve continually. 

Finally, we believe that successful sustainable investing strategies require a balance between an investment’s expected return, its specific financial (including relevant ESG and sustainability) risks, and the need to ensure it is consistent with clients’ objectives.  

For the purposes of SFDR, sustainability risk is not concerned with the risk of harm that our investment decisions may do externally to sustainability factors.  In other words, this policy covers “value” rather than “values”.  The external harm of investments is covered by a separate regime under SFDR, which considers the principal adverse impacts of a firm’s investment decisions on sustainability factors.  Given its size, JOHCM is entitled to make a decision whether or not to implement the principal adverse impact arrangements under Article 4 of SFDR, and has elected not to comply for now.  This decision will remain under review at a firm level while further elements of SFDR are implemented, but does not preclude individual investment teams from doing so as part of their own investment considerations for each strategy.
 

Consideration of Sustainability Risks

As part of its broader risk management processes, JOHCM has implemented procedures to identify, measure, manage and monitor sustainability risks within investment analysis and decision-making.   Reflecting our multi-boutique structure, teams have autonomy to integrate ESG and sustainability considerations in a manner consistent with their investment approach.  Where any ESG or sustainability considerations may impact the financial performance of an investment, those factors are taken into account as part of JOHCM’s active investment processes in the same way as we consider other potential risk factors.  Therefore, all investment teams review the sustainability risks, including within research, analysis and due diligence, which are potentially likely to cause a material negative impact on the value of their clients’ investments, should those risks occur.

Where investment teams differ is in how they factor those sustainability considerations into their investment processes. This is best demonstrated through the application to JOHCM’s funds of SFDR, which categorises funds into three groups depending upon the degree to which they have integrated these factors into their investment processes.

•    Article 6 funds – While the fund management teams are provided with information on sustainability risks, and are encouraged to take sustainability risks into account when making an investment decision, a sustainability risk would not by itself prevent the fund manager from making any investment.  Instead, sustainability risk forms part of the overall risk management processes, and is one of many risks which may, depending on the specific investment opportunity, be relevant to a determination of risk.  

•    Article 8 funds – These funds consider sustainability factors in the pursuit of their investment objectives. There will be a spectrum of approaches within Article 8 and sustainability considerations (including sustainability risk) will form a binding element of the investment process, although the fund will not necessarily be pursuing specific sustainability objectives. 

•    Article 9 funds – These are funds which have a dual purpose.  As well as seeking a financial return, they also target sustainability outcomes, as the investment objective of these funds is to generate a positive social and/or environmental impact by making sustainable investments.

While there is some consideration of ESG and sustainability risks as a part of every investment strategy managed by JOHCM, the defining characteristic of the Article 8 and 9 funds managed by JOHCM is increased integration of these considerations as part of the investment process. In other words, there is a progression from evaluating only the financially material risks to a portfolio towards more values-based investment decision making.  The extent to which values-based considerations are integrated determines into which of the above categories a particular fund may fall.

In measuring sustainability risk, fund managers may take into account both “physical” and “transition” risks. An example of a “physical” or tangible risk related to a sustainability event is the impact of severe climate-related weather events leading to business disruption or losses for a fund’s investment positions. “Transition” risks focuses on the risk to real and financial assets as the world moves towards a more sustainable environmental and social model.

For those funds that put an increased emphasis on sustainability risks, fund managers use a variety of tools in order to select investments. These include:

•    Sustainability metrics: The fund manager uses sustainability scores from third party data providers to assess the potential likelihood of occurrence and severity of sustainability risks within the typical investment horizon for the fund manager’s clients.  Certain fund managers will gather this data into a “scorecard” through which to collate a number of metrics in relation to a potential investment. 

•    Exclusionary screens: Various fund managers apply exclusionary screening to support in the mitigation of potential sustainability risks.  These screens may exclude particular issuers, industries, jurisdictions and / or geographies which the fund managers have identified as having elevated sustainability risk. Other screens may be implemented to support improved environmental or social characteristics of their funds.

•    Best in class: Certain fund managers apply best-in-class investment criteria, by which the fund managers believe they can improve the sustainability risk profile of their clients’ portfolios.  This approach applies a sustainability risk rating score to relevant issuers / industries / jurisdictions / geographies and imposes a restriction on investing in those issuers with poor comparative risk ratings.

•    Thematic investing: In these funds, the fund manager manages the strategy on a thematic basis, with the specific purpose of promoting particular ESG-related characteristics within the fund, for example a lower-carbon fund.  The thematic focus of the fund should lead to  lower sustainability risks in its portfolio.  

•    Impact Investing:  Impact funds pursue social and/or environmental outcomes in addition to financial objectives.  Due to the sustainability focus of such investments, the fund managers generally consider that sustainability risks to the value of these portfolios will be lower.

Once investments have been made, fund managers will then conduct periodic monitoring of the existing client portfolios, to check that positions remain within sustainability risk limits, and take corrective action if those limits are breached.
ESG and sustainability risk management is further supported by a quarterly review held with each investment team, chaired by JOHCM’s Investment Director. This comprehensive review of performance and risk management includes specific review of each portfolio’s ESG risk profile. The JOHCM Head of Risk is also present to discuss risks and to ensure
their documentation and ongoing monitoring. 


Active ownership and stewardship

Active ownership and stewardship refers to the use of the rights and position gained from securities ownership to influence the activities or behaviour of investee companies or issuers, such as through corporate engagement and proxy voting, or other engagement and advocacy activities undertaken more broadly such as with policy makers. 

As an active manager, we believe that such practices are a critical tool to support the investment goals of our clients and to manage sustainability risks. We seek to be an active and responsible steward of the investments we make, where relevant, influencing the companies in which we invest to improve ESG risk management and, where appropriate, improve sustainability practices. We achieve this by, for example, voting at shareholder meetings, meeting with company senior management, or participating in initiatives to improve industry standards.

When engaging directly with investee companies, we focus on meeting with those where we have identified areas of concern or where our shareholding affords us greater influence so we may drive improved practices, including with respect to ESG and sustainability risk management.

Consistent with our multi-boutique structure, we do not subscribe to a ‘house’ approach to investee company engagement. We believe the best framework is for each investment team to develop and undertake its own engagement tailored to its strategy and jurisdiction. However, our teams collaborate internally where there are common shareholdings.  Further details can be found in the applicable JOHCM Stewardship Policy. 


Governance 

The policy has been prepared and adopted by the Directors of JOHCM Funds (Ireland) Limited in conjunction with the Directors of JOHCML.  This policy will be subject to review on an annual basis, unless there is a material change to the underlying processes and procedures, in which case it will be reviewed at that time.

Both JOHCM Funds (Ireland) Limited and the funds that it manages are domiciled in Ireland and therefore are directly in scope of SFDR.  While JOHCML is not itself subject to the SFDR, by virtue of the appointment of JOHCML as investment manager to JOHCM Funds (Ireland) Limited, it has also adopted this policy. 


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