Columbia Threadneedle Future Environment – Website Disclosures
Summary Document –
A Summary document of the main features of the Fund is available to download from this page. Translations into the official language of the EU jurisdictions into which the Fund is distributed are also available.
No Significant Harm Statement –
The Fund’s investment approach ensures that the Sustainable Investments made by a Fund do not significantly harm (“DNSH”) any environmental or social objective. This includes the use of the indicators for principal adverse impacts (PAI) on sustainability factors.
Through the Fund’s investment research, Sustainability Risks are considered at all points in the investment cycle which serves to mitigate the risks of significant harm on a continuous basis. The Investment Manager identifies harm by using a quantitative threshold against a selection of principal adverse impact indicators, including all mandatory indicators from Table 1 of Annex I of Commission Delegated Regulation (EU) 2022/1288 (the “RTS”) and relevant indicators in Tables 2 and 3 of Annex I of the RTS. Issuers which fall below these thresholds are flagged as potentially harmful. This is then considered taking account of the materiality of the harm, whether harm has or is occurring, and whether mitigating activities are underway to address harm. Where data is not available investment teams endeavour to satisfy that no significant harm has taken place through research or issuer engagement. In addition, all holdings must comply with a set of environmental and social exclusions which seek to avoid harming sustainability factors.
The Sustainable Investments are aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.
The Fund specifically excludes companies which severely breach the United Nations Global Compact (UNGC) principles and further considers good conduct when making investments. In addition, the DNSH checks also assess issuers for explicit harm against the underlying principles of the UNGC and OECD Guidelines for Multinational Enterprises.
Sustainable Investment Objective –
The Fund has Sustainable Investment as its objective by investing in companies that contribute positively to the environment with exposure to the Environmental Themes. The Environmental themes include;
Biodiversity Protection: Companies positively aligned to this theme will help promote and contribute to the preservation and protection of biodiversity and nature, and include companies that sell precision agriculture tools, enable regenerative farming, or promote ocean health. The United Nations Sustainable Development Goals (SDGs) linked to this Environmental Theme are SDGs 2 (Zero Hunger), 14 (Life Below Water), 15 (Life on Land).
Circular Economy: Companies aligned to this theme will promote sustainable consumption and enable the circular economy, or to reduce, reuse, recycle. The SDGs linked to this Environmental Theme are SDGs 6 (Clean Water and Sanitation), 11 (Sustainable Cities and Communities), 12 (Responsible Consumption and Production).
Energy Transition: Companies aligned to this theme enable the energy transition to more sustainable sources like renewable energy, green hydrogen, and provide decarbonization technologies. The SDGs linked to this Environmental Theme are SDGs 7 (Affordable and Clean Energy), 9 (Industry, Innovation and Infrastructure), 13 (Climate Action).
Sustainable Finance: Companies aligned to this Environmental Theme are mobilisers of capital towards enabling the energy transition and harness the power of capital to encourage the adaptation and mitigation of environmental challenges. The SDGs linked to this Environmental Theme are SDGs 7 (Affordable and Clean Energy), 9 (Industry, Innovation and Infrastructure), 13 (Climate Action), 14 (Life Below Water), 15 (Life on Land).
Resource Efficiency: Companies aligned to this Environmental Theme are companies that provide solutions to improving resource efficiency, be it through efficient water management, or any other scarce resource. The SDGs linked to this theme are SDGs 2 (Zero Hunger), 6 (Clean Water and Sanitation), 8 (Decent Work and Economic Growth), 9 (Industry, Innovation and Infrastructure).
Sustainable Cities: Companies aligned to this Environmental Theme are providers of smart and resilient infrastructure and promote/enable sustainable mobility for the cities of the future. The SDGs linked to this theme are SDGs 7 (Affordable and Clean Energy), 8 (Decent Work and Economic Growth), 9 (Industry, Innovation and Infrastructure), 11 (Sustainable Cities and Communities), 12 (Responsible Consumption and Production).
The Investment Manager identifies relevant Sustainable Development Goals (SDGs) to ensure that those SDGs are aligned to the identified Environmental Themes. Linking the SDGs in this manner assists the Investment Manager in identifying those companies which within their business mix materially address the identified Environmental Themes.
The Manager seeks to avoid investments that are contrary to the goals of making positive contributions to the environment; invest in companies that provide sustainable solutions or that make positive contributions to the environment; and improve companies by targeted engagement on material environmental issues.
The Fund aims for 100% of investments to be Sustainable Investments, excluding cash or certain derivative positions. In order to achieve the Sustainable Investment objective, the Investment Manager identifies and targets Environmental Themes including Biodiversity Protection, Circular Economy, Energy Transition, Sustainable Finance, Resource Efficiency and Sustainable Cities.
The following sustainability indicators are used to measure the attainment of the Sustainable Investment objective of the Fund:
- The number of investee companies determined to be in breach of the Fund’s exclusion criteria and/or global norms;
- The percentage of the Fund’s investments that align to its Environmental Themes;
- Investee companies’ revenue alignment with the targets underpinning the United Nations’ Sustainable Development Goals (SDGs);
- The number of environmental engagement objectives achieved by the Fund.
Investment Strategy –
The Fund’s investment objective is capital appreciation. In addition, the Fund has as its Sustainable Investment objective investment in a portfolio of companies worldwide that, through their products and services, aid adaptation and mitigation of global environmental challenges.
In seeking to achieve the investment objective of capital appreciation, the Investment Manager conducts thorough due diligence of potential investee company fundamentals, from both an operational perspective and in respect of their ESG credentials, in order to identify high quality businesses that on account of the strength of their competitive advantages, as well as of their management team to drive the business forward, are likely to experience sustained growth outperformance relative to their industry and the wider market. When combined with a thorough assessment of intrinsic valuation of the company, investing in these high-quality companies at an attractive valuation sets up the potential for capital appreciation over the long term. Key metrics underpinning these assessments are return metrics such as revenue growth, profitability margins, Return on Invested Capital (RoIC) and balance sheet leverage (net debt/EBITDA (earnings before interest, tax, depreciation and amortisation). Intrinsic company valuations are typically assessed using a Discount Cash Flow model over 10 years, incorporating internally developed assumptions and forecasts and a proprietary discount rate model in order to fully capture and integrate both operational and ESG risks and opportunities into intrinsic valuations.
In order to achieve the Sustainable Investment objective, the Investment Manager identifies and targets Environmental Themes including Biodiversity Protection, Circular Economy, Energy Transition, Sustainable Finance, Resource Efficiency and Sustainable Cities.
As a consequence of the Fund’s Sustainable Investment objective, the Fund shall notably contribute to the following United Nations Sustainable Development Goals: Zero Hunger (SDG2), Clean Water and Sanitation (SDG6), Affordable and Clean Energy (SDG7), Industry, Innovation and Infrastructure (SDG 9), Sustainable Cities and Communities (SDG 11), Responsible Consumption and Production (SDG 12), Climate Action (SDG 13), Life Below Water (SDG14), and Life on Land (SDG15).
The UN SDGs are part of the United Nations’ 2030 Agenda for Sustainable Development, adopted by all UN member states in 2015, and comprise 17 goals which aim to tackle the world’s approach to the environment, through considerations such as responsible consumption and production, and social matters, such as ending poverty and ensuring children receive quality education. The full list of the 17 UN SDGs can be found on the UN’s website here – https://sdgs.un.org/goals.
The strategy used to attain the Sustainable Investment objective of the Fund is driven by a clear ethos of “Avoid, Invest, and Improve”:
- Avoid: The Investment Manager maintains high level exclusions to avoid investments that are contrary to the goals of making positive contributions to society and/or the environment
- Invest: The Investment Manager looks to invest in companies that provide sustainable solutions or that make positive contributions to the environment, as detailed above.
- Improve: The Investment Manager seeks to drive targeted improvement, selecting those companies that, in the Investment Manager’s opinion, will benefit from active investor engagement, leading to reduced risk, improved performance, best practices and, overall, long-term investor value
The criteria apply to all investments in the Fund and is applied on a continuous basis through the “avoid, invest, improve” philosophy. They criteria will also include considerations on biodiversity, water use and taxation. The Investment Manager will expect investee companies to minimise negative impacts on biodiversity, comply with national regulations and international agreements regarding managing water consumption and pay fair and proportionate taxes and to report their taxes. Companies invested in by the Fund are subject to monitoring to ensure compliance with the above investment strategy.
Proportion of Investments with the objective of Sustainable Investment –
The minimum proportion of the investments of the Fund that will qualify as sustainable investments is 0%. All of the Fund’s sustainable investments shall contribute to environmental objectives.
Certain elements of the Investment strategy are binding. These elements will always be applied to attain the sustainable investment objective. All assets in which the Fund invests, other than cash and derivatives, are subject to the sustainability criteria set out in the investment policy of the Portfolio and in the section above, which may include assets where the Investment Manager believes it can make a difference through a positive contribution to the environment and society, under the “invest” and “improve” elements of that strategy. All elements of the strategy are binding on the Investment Manager.
The Fund shall have the following specific investment exclusions:-
- Fossil Fuels
- Electricity Generation
- Conduct Based Exclusions
Monitoring of the sustainable investment objective –
The Investment Manager monitors portfolio companies ad hoc to affirm that no material deterioration in governance practices has occurred. The Investment Manager has a number of teams that implement monitoring requirements. The Investment Mandate Control team undertakes daily pre and post trade monitoring to assure compliance with investment restrictions. Ongoing monitoring is also undertaken by the Responsible Investment team to ensure that investments continue to meet the required criteria of the Fund. The Compliance monitoring team undertakes a quarterly review to test ongoing SFDR compliance. If the Investment Manager concludes that there has been a material deterioration, and if engagement is not considered appropriate, the relevant securities must be divested. The Investment Manager may conduct further review and engage with the company to better understand the issue(s), and/or encourage improvements. After a set probationary period, if the company has not abated the concerns, all securities of the company must be divested. Investee companies are monitored on an ongoing basis to confirm that there has been no material diminution in governance practices. The Investment Manager may engage with a company to better understand any flagged issues as part of its review. Where it is considered that a company no longer demonstrates good governance practices, the securities will be divested from the Fund.
Methodologies used to measure the attainment of the sustainable investment objective –
The Fund leverages the Investment Manager’s detailed proprietary SDG (Sustainable Development Goal) mapping methodology. This internally developed methodology encompasses an assessment of underlying businesses and whether they align to specific targets within the SDG framework. These assessments are carried out by the Investment Manager’s Responsible Investment team in order to ensure a dispassionate and independent view of alignment, away from the Investment Manager’s Investment team. The rationale behind these assessments is to identify SDG materiality; to take a dispassionate view in identifying those companies for who addressing long term sustainability issues as a material part of their business mix. In deploying this SDG mapping methodology, the Investment Manager identifies those companies where 50% of net revenues (which is calculated by deducting negative aligned revenues from positive aligned revenues) are aligned to the SDGs within the scope of the Environmental Themes, or where the Investment Manager maintains conviction that they will reach that threshold on a 2-3-year timeframe. Also applicable under the Sustainable Finance theme are companies where engagement opportunities exist to drive environmental adaption and mitigation within their loan book.
The Investment Manager leverages its in-house ESG capabilities by assessing each company’s Sustainability Risk, evaluating and quantifying those exposures, and embedding those assessments into revenue and margin assumptions, where appropriate, within the Investment Manager’s discounted cash flow (DCF) valuations. DCF is a valuation method used to estimate the value of an investment based on its expected future cash flows. The Investment Manager embraces its proprietary sustainability scoring methodology which is integrated into its multifactor model to build a discount rate that is amplified across the DCF whereby low Sustainability Risk exposures are rewarded with a lower discount rate (all other things being equal) and higher Sustainability Risk exposures will see a higher discount rare and a lower intrinsic value.
This analysis forms the backbone of the Investment Manager’s security selection and portfolio management, with aggregate portfolio sustainability scores, and constituent contributors also driving portfolio management decisions, meaning Sustainability Risk assessments are integral to the Investment Manager’s processes and deployed throughout the process.
Data Sources and Processing –
The Investment Manager uses a variety of third-party data to help assess a company’s governance practices and supplements this data with its own fundamental research. The Investment Manager also uses stewardship to better understand companies’ governance and encourage them to meet evolving standards of best practice.
The Investment Manager will typically construct ESG data into proprietary models including ESG ratings, SDG mappings, Net Zero alignment and Principle Adverse Impact models. Therefore the ESG inputs are typically derived rather than estimated data, although estimated data may be utilised. The Investment Manager also source ESG ratings and research which is reliant on vendors’ underlying methodology which may make use of estimated data or subjective analysis. This is further supplemented with internal investment research which may use various assumptions. Given the investment teams also have access to thousands of distinct ESG datapoints which they may or may not draw on, the Manager is not able to define the proportion of estimated data which is used in the research process.
All investee companies are subject to a pre-investment assessment of their governance practices and the Investment Manager conducts ad hoc monitoring of all corporate holdings. Governance risk flags are used to identify governance failures or risks which should be addressed by further research, voting or engagement where relevant.
Limitations to data and methodologies–
The Investment Manager’s approach to evaluating the ESG profiles of issuers within its eligible investment universe may be constrained by the availability, quality and relevance of sustainability related data available to the Investment Manager.
The availability, quality and relevance of data relating to sustainability within the eligible investment universe may be limited, both in an absolute sense and in comparison to data on sustainability within other sectors or markets, due to a lack of sustainability related regulations and reporting standards in the countries that the Investment Manager can invest in, changes in sustainability related regulations and reporting standards in the countries that the Investment Manager can invest in, inconsistencies in sustainability related regulations and reporting standards between jurisdictions, a lack of historic information available on sustainability for issuers, low coverage on, or inconsistencies with respect to the evaluation of, particular issuers by third party research and data providers or material inaccuracies in the sustainability related information reported by issuers.
The investment Manager will attempt to overcome any such limitations in external data through the use of additional data providers, internal research and due diligence on a best endeavours basis.
Due Diligence Process
The Investment Manager’s assessment of investee companies is carried out at the sustainability due diligence phase of the investment strategy outlined above. The Investment Manager’s analysts assess all companies before investment. The Investment Manager may engage with the company to better understand any flagged issues, or to encourage improvements. If the Investment Manager ultimately concludes that the company demonstrates poor governance, the Fund will not invest in any securities of that company.
The Investment Manger’s proprietary ESG scores are used as part of its assessment of good governance to assess performance on corporate governance, corporate behaviour, and human capital development. The Investment Manager would not invest in companies scoring in the lowest segment of these ESG scores, unless mitigating factors exist.
For inclusion in the investable universe, stocks are submitted to the Responsible Investment Team which screens companies against exclusions criteria using data providers and primary research. The Investment Manager uses an external , independent advisory council to assist on the development of the criteria and to assist with the review of screening decisions.
Where an investment is deemed a sustainable investment , the Investment Manager will also assess it to ensure that:
◼ any corporate investment demonstrate good governance
◼ the investment contributes to a sustainable objective
◼ the investment does not significantly harm other sustainability objectives.
All holdings deemed eligible to be held in the fund are reviewed against the Principle Adverse Indicators that the fund has opted to consider for the purposes of engagement prioritisation.
Engagement Policies –
Engagement with issuers is part of the investment approach. Active ownership enhances insights, drives change, and helps create future value. The Investment Manager believe that engagement on environmental, social, and governance issues will have a positive impact on corporate performance and investment returns, as well as on society or the environment.
The Responsible Investment Engagement Policy outlines our approach to engagement across asset classes, themes covered, how we prioritise and potentially escalate engagement.
The primary driver for engagement is to have constructive dialogue with issuers to support long-term investment returns by reducing risk, capitalising on opportunities linked to ESG factors, and reducing any material negative impact that our investment decisions could have on these factors. It is believed that the Investment Manager can play a part in building a more sustainable and resilient global economy by encouraging issuers to improve their ESG practices. This can also help drive positive impacts for the environment and society that are in line with the achievement of the United Nations Sustainable Development Goals (SDGs).
The engagements focus on financial performance, sustainability risks and opportunities, operational excellence, capital allocation policies and managerial incentives, among other topics. Collaboration across asset classes, themes and sectors ensures an informed approach.
The Investment Manager will agree and set engagement objectives and timelines and use escalation strategies, where appropriate.
Engagement will be executed by our Responsible Investment team, by the fund managers, or jointly. Engagements will be documented by the Investment Manager, and regular reporting on engagement metrics will be made available.
The Fund is actively managed by the Investment Manager in reference to the MSCI All Country World Index (the “Benchmark”). The Benchmark includes large and mid-cap securities across the markets classified by the MSCI World Index as developed markets countries and the markets classified by the MSCI Emerging Markets Index as emerging markets countries. The Benchmark is quoted in USD. Further information can be found on www.msci.com.
The Fund is considered to be actively managed in reference to the Benchmark by virtue of the fact that it seeks to outperform the Benchmark. While certain of the Fund’s securities may be components of and may have similar weightings to the Benchmark, the Investment Manager will use its discretion to invest in securities or sectors not included in the Benchmark in order to take advantage of investment opportunities. The investment strategy does not restrict the extent to which the Fund’s holdings may deviate from the Benchmark and deviations may be significant. This is likely to increase the extent to which the Fund can outperform or underperform the Benchmark. The Benchmark has not been designated a reference benchmark for the purposes of SFDR.
The list of benchmark administrators that are included in the Benchmark Regulation Register is available on ESMA’s website at www.esma.europa.eu. As at the date of this Supplement, the following benchmark administrator is availing of the transitional arrangements afforded under the Benchmarks Regulation and, accordingly, does not appear on the Benchmarks Regulation Register: MSCI Limited.