Funds Group: WCM Funds
Management Company: WCM Investment Management Company
Funds Affected: WCM Focused ESG Emerging Market Fund, WCM Focused ESG International Fund
Principal Sustainable Investment Management Strategy: ESG integration, negative screening (exclusions), engagement
Summary:
The advisor’s investment process begins with bottom-up, fundamental research, integrated with an analysis of a company’s environmental, social and governance (ESG) characteristics. The advisor’s bottom-up, fundamental research involves examining and ranking companies based on the following factors: (i) the company’s corporate performance; (ii) the company’s competitive position; (iii) the company’s potential future growth; and (iv) the company’s intrinsic value. Next, the advisor utilizes a proprietary, qualitative analysis in screening companies for the fund’s portfolio that satisfy its ESG criteria. Industry-specific, material ESG value drivers are identified for each company based on the internally derived criteria as well as from information sourced from corporate disclosures, specialized datasets and other publicly filed information. The advisor’s strategy is focused on identification and analysis of material ESG drivers, which are the most relevant and financially important ESG aspects of the company’s business model. These “drivers” can have a significant short or long term impact on the company’s environmental, social and governance profile. The advisor’s methodology determines what it believes the impact each of the drivers has on the metrics such as revenue, profits, cash flow, returns and risks. These drivers serve as a tool to identify companies’ with improving ESG characteristics (i.e., the company’s “ESG Trajectory”). The advisor’s approach is also informed by industry-based standards for material ESG factors established by the Sustainability Accounting Standards Board. In addition, the advisor will review company financial filings, proxy disclosures, corporate sustainability reports, Carbon Disclosure Project scores, government databases, Bloomberg ESG analytics, Institutional Shareholder Services Inc. (“ISS”) reports and engage with company management as part of its screening process. The advisor’s environmental assessment 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, better management of energy, water and waste resources, or offer solutions to emissions regulations. Social assessment includes identifying companies that promote societal benefits or address societal challenges. For example, the fund may invest in companies with good diversity practices, lower employee turnover, and solid employee safety track-records. Governance assessment includes a focus on shareholder rights, senior management compensation, board structure, and audit/accounting risk. Based on the advisor’s deeper qualitative ESG assessment, the advisor selects companies that demonstrate a strong or improving ESG Trajectory and generally excludes companies with weak ESG performance. The fund’s ESG screening process is designed to exclude companies that are involved in and derive significant revenue from certain industries or product lines, including: Tobacco, gambling, civil firearms (i.e., those firearms typically available for consumer use in the United States), and controversial weapons (e.g., land mines).
The fund’s ESG screening process does not exclude traditional defense contractors nor does it exclude all alcohol. The advisor does not utilize third-party ESG rankings or a scoring mechanism in the fund’s portfolio construction process.
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