Our method for responsible investment
Responsible investment includes several methods at different stages of the investment process to integrate the ESG factors in the decision-making process of portfolio management. For Fondita, these methods are:
- Negative screening as in exclusion/norm-based screening
- Positive screening as in enhanced theme-based screening
- Integration of ESG factors in the investment analysis
- Active ownership and engagement according to our Engagement Policy
- Advocate for sustainable development and responsible investment
Positive and negative screening
Positive screening for our theme funds is to look for companies whose operations enhance sustainability and benefit from various sustainable megatrends. At Fondita, we have identified three megatrends that we believe are sustainable and will prevail for years to come: climate-smart solutions, health and well being, and digitalization and technological development. They all promote development that contributes to a more sustainable future combined with growing underlying markets.
With negative screening, Fondita exclude certain sectors and companies from our investment universe that we deem unsustainable. We do not invest in companies which have verified breaches of the UN Global Compact principles, OECD guidelines for multinational enterprises and/or the Do No Significant Harm principle (EU Taxonomy). Fondita does not invest in companies which receive over 5 % of their revenues from the following sectors: fossil fuels, tobacco, recreational cannabis, alcohol, gambling, quick loans and adult entertainment. Fondita does not invest in companies with any ties to controversial weapons. All of Fondita’s holdings are screened against the exclusion list on a monthly basis.
ESG integration
Responsible investment decisions are made by taking ESG factors into account and integrating them into the overall analysis of a company. We use our internal company-specific analysis tools based on a manual materiality based ESG assessment, ESG analyses from partners, as well as ESG tools and databases from MSCI and Bloomberg.
Before we make an investment decision, we strive to discuss with the company’s management to ensure that our view of the company and its strategy aligns with the management’s vision. We are also active owners during the investment period itself, closely monitoring the company’s operations and meeting with company representatives every year. During these meetings, we discuss issues that affect operational activities and the business environment. Whenever possible, we strive to encourage responsible and sustainable operations, as well as transparency in reporting.
More information about our methodology for responsible investments in our Responsible Investment Policy.
When carrying out our ESG inquiries with our portfolio companies, we examine closely various parameters that affect environmental, social and governance aspects. We pay special attention to the following factors:
Environment
- Use of renewable energy
- CO2 emissions (scope 1 & 2)
- Carbon dioxide risk
- Energy consumption
- Water usage
- Waste management
- Taxonomy
Social
- Gender equality and diversity
- Safety
- Health
- Corporate culture
- Measures to prevent human rights violations
Governance
- Measures to combat corruption and bribery
- Board independence
- Remuneration policy
- The relationship between ESG factors and remuneration
- The company’s risk management
These meetings also give us the opportunity to raise subjects that are important to us. From 2022 onwards, we will identify at least two important sustainability topics that we will consistently discuss with the companies’ management. In 2022, we will focus on 1) the company’s strategy for achieving carbon neutrality and 2) the company’s actions for achieving equality and diversity.
Active ownership
Stock selection plays an important role in our investment philosophy. All our funds are high conviction, concentrated funds, with approximately 30-40 holdings per fund. Extensive internal analysis work is carried out as a basis for investment decisions, especially for small cap funds. In addition, we value discussions with analysts covering our holdings. We also place immense importance on meeting with the portfolio company’s management to verify the implementation of strategy and future prospects.
Active ownership for us is best reflected through company meetings. If the situation requires, we can vote at general meetings or exercise influence via investor initiatives together with other investors.
As active and long-term owners, it’s natural for us to have a good dialogue with our portfolio companies. Whenever possible, we strive to encourage responsible and sustainable operations and transparency in reporting. Factors related to the environment, society and good administrative practices have a major impact on how we define opportunities and see risks. They can also affect the company’s valuation.
As part of our strategy for responsible investments, we always make a detailed ESG analysis of our new holdings and inquire about factors related to the environment, society and social responsibility, and good corporate governance.
In 2022, we will focus primarily on two sustainability matters in our company meetings. These are 1) the company’s strategy for accomplishing carbon neutrality and 2) the company’s actions for achieving equality and diversity.
Company meetings 2021
While the pandemic prevented the standard physical meetings in 2021, it actually generated more virtual meeting opportunities between investors and company management. Fondita’s portfolio managers participated in a total of 641 virtual meetings in 2021.
In these meetings, we discuss current issues that affect the company’s business, both from an operational point of view and concerning the business environment. We also discuss the company’s goals, strategy and the conditions for implementing the strategy successfully. Similarly, we look at the company’s competitors and competitive advantages, market position and pricing power.
ESG aspects play an increasingly prominent role in the meetings, which is very positive. The focus is often on companies’ environmental impact, but the importance of social responsibility and governance is constantly growing.
The discussions are often framed around the UN’s sustainability goals and the companies’ own corporate responsibility and sustainability strategy.
Corporate Govenance
PRINCIPLES OF CORPORATE GOVERNANCE FOR FONDITA FUND MANAGEMENT COMPANY LTD.
This section describes principles regarding exercising voting rights in companies held by the funds managed by Fondita. Fondita’s board of directors review and approve the principles on an annual basis.
• CORPORATE GOVERNANCE
Fondita is obligated to ensure that the interests of the funds and fund unitholders are guaranteed in the best possible manner. This refers to the effort to increase the fund’s value in relation to the fund’s investment strategy and risk level. Even though the funds managed by Fondita always are minority owners, Fondita can, through corporate governance, affect the decisions made in the companies.
Corporate governance aims at a long-term increase in the value of the fund’s companies. Fondita assumes that the target companies comply with good corporate governance and investment principles. For example, by following the Finnish Securities Market Association’s code for corporate governance. Additionally, emphasis is placed on environmental and social responsibility.
If any of the fund’s target companies’ corporate governance and management is insufficient, Fondita tries to affect the company and their management to change their operations. In such cases, cooperation with other shareholders may also occur. Fondita may also conclude that it is better for the shareholders to withdraw the holding than to affect the company’s proceedings.
• FOLLOW-UP OF IMPORTANT EVENTS IN THE COMPANY
The portfolio managers continuously monitor the circumstances affecting the fund companies, such as news and stock announcements as well as corporate events such as dividends, subscription rights, share issues, mergers and shareholders’ meetings.
• ANNUAL GENERAL MEETING
Fondita strives to attend the companies’ annual general meetings where the interests of the fund unitholders require protection. If necessary, Fondita may also vote by proxy through an agent. Fondita is obligated to use the voting rights according to the purpose and strategy of the company in question. Each fund votes individually at the annual general meeting.
At the general meetings, Fondita puts particular importance on matters related to the interest of the fund unitholders. For example, matters regarding:
- the companies’ capital structure
- reward systems
- appointment and composition of the board
- ESG-matters
- transparent impact opportunities and appointment processes
PREVENTION OF CONFLICTS OF INTEREST
If the interests in the funds managed by Fondita differ, the voting rights should always be used for the benefit of each individual fund.
Cooperation and investor initiatives
The strength of responsible investing is realized when a broad group of investors collectively pursue important issues concerning the environment, social responsibility and corporate governance. It is essential for us to have an active role, both as owners and as advocates for sustainability in society in general.
This is why Fondita is actively involved in cooperation with other organizations in contributing to sustainable development. Since 2010, we have committed ourselves to the UN’s principles for responsible investment in our investment activities, and we report annually to the UN Principles for Responsible Investment (PRI) organization.
As signatories to the UN PRI, we commit ourselves to:
- Integrating ESG issues into our investment processes and our decision-making.
- Being active owners and including ESG issues as part of our corporate governance.
- Striving for appropriate reporting on ESG issues from the companies we invest in.
- Working to promote acceptance and implementation of these principles in the investment industry.
- Promoting responsible investment with other investors.
- Reporting on our activities and progress regarding the application of the principles.
Fondita is also a member of Finland’s Sustainable Investment Forum (Finsif) and Sweden’s Sustainable Investment Forum (Swesif). The purpose of these associations is to promote responsible investment and act as a platform for networking and knowledge exchange.
Fondita has signed up to the CDP Climate, Water and Forests Program in 2022. By taking part in the work of this global non-profit organisation, we can influence and contribute to an increasing number of companies and cities reporting their environmental impact through the CDP investor initiative. During 2023 we participated in one of their campaigns, read more about it behind the link.
As we do not accept norm-breakers in our investment activities, we also want to commit to following the same principles and values in our own operations.
In 2021, the Net Zero Asset Manager’s Initiative was also signed. This obligates us to achieve net zero emissions in our funds by 2050. More information about the Net Zero Asset Management initiative can be found on https://www.netzeroassetmanagers.org/
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