Funds Group: Kennedy Capital
Management Company: Kennedy Capital Management, Inc.
Funds Affected: Kennedy Capital ESG SMID
Principal Sustainable Investment Strategies: Negative Screening (Exclusions), ESG Integration and shareholder engagement
Summary:
The advisor’s investment decisions for the Fund are made primarily on the basis of bottom-up, fundamental research, integrated with an analysis of a company’s environmental, social and governance (“ESG”) characteristics. ESG factors are considered on both an inclusionary and exclusionary basis. The advisor’s investment process involves examining four key components: (i) the company’s corporate performance (including traditional fundamentals and ESG variables); (ii) systematic effects on the company’s business; (iii) the company’s competitive position; and (iv) the company’s intrinsic value. The advisor’s environmental assessment process includes identifying companies that provide products or services that are tied to an environmental competitive advantage as compared to their peers. For example, the Fund may invest in companies offering products or services with superior energy efficiency, solutions to emissions regulations, or services related to recycling and product reuse. Social assessment includes identifying companies that promote societal benefits or address societal challenges. For example, the Fund may invest in companies that focus on lowering the cost of healthcare, combatting the opioid epidemic, or offering ethically sourced products. Governance assessment includes a focus on shareholder rights, senior management compensation, board structure and audit/accounting risk.
The advisor may complement its internal ESG assessment of a company with relevant primary data from third parties regarding ESG considerations such as carbon emissions and reserves, business involvement data for key social issues, and corporate governance. The advisor does not utilize third party ESG rankings or a scoring mechanism in the Fund’s portfolio construction process. The advisor engages in active dialogues with company management teams to further inform its investment decision-making and to foster discussion with management regarding ESG issues and opportunities.
The fund is fossil fuel free which means it excludes companies that hold fossil fuel reserves on their balance sheets. The fund prioritizes reduced greenhouse gas emissions (reported and estimated) in the portfolio construction process. In addition, the fund’s ESG criteria is designed to exclude companies that are involved in, and/or derive significant revenue from, certain industries or product lines, including tobacco, civil firearms (defined as those firearms typically available for consumer use in the United States) and controversial weapons (defined as cluster munitions and land mines). The fund’s ESG criteria does not exclude traditional defense contractors with no exposure to controversial weapons or civil firearms.
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