ESG Assessment

The Chelverton philosophy dictates that financial criteria come first. Only companies meeting the financial criteria set by the mandate are considered for investment. Beyond this hurdle each strategy follows a selection process based on identifying investment quality indicators, including how well each company is identifying and managing ESG risks and opportunities.

Each company’s material ESG issues are systematically identified and ESG management capabilities are assessed.

Whilst investment selection incorporates an element of ESG scoring, given the dynamism of the SMID investment universe, Chelverton rely more heavily on dynamic assessment criteria. Assessments incorporate proprietary and contextual research inputs, with an emphasis on the quality of company material ESG risk identification, the integration of the sustainability strategy within the business plan, and the ‘direction of management travel’.

Active Stewardship

Chelverton consider active stewardship to be a core component of how they seek to protect and enhance investment value.

The small and mid-cap investment universe is under-researched and published information can be sparse.

To address this problem managers devote significant resources to engaging committed holdings regarding their management of ESG risks and opportunities in a variety of different ways:

• An annual letter outlining Chelverton’s ESG management and reporting expectations
• An ESG questionnaire designed to focus in-depth dialogue
• Regular company update meetings
• Focussed company ESG meetings
• Offering advice and support to smaller companies as they develop their management capacities.

ESG Questionnaire responses and engagement records are shared between team members using a company engagement log. This log records all shareholder resolutions and Chelverton’s voting decisions.

The ESG Team lead a monthly ESG meeting attended by all team members. The meetings offer the managers the opportunity to exchange views and discuss the following:

• Horizon scanning for changes in ESG risks and opportunities
• Quarterly portfolio ESG risk reports using MSCI data, which summarise portfolio level ESG Quality, Carbon Risk, Controversial Business Exposures, and Controversy Risk

Chelverton do not outsource any aspect of investment decision-making or stewardship to third party ESG service providers, using external ESG research services for contextual purposes only.

The managers believe shareholder voting is an important shareholder right and vote on all shareholder resolutions with the benefit of support and advise from Chelverton’s specialist Corporate Governance Manager.

Chelverton seek constructive relationships with executive and non-executive company directors and have a disposition to vote in favour of all management resolutions at shareholder meetings once they have committed to an investment thesis. However, under circumstances where Chelverton feel at odds with a resolution, and they feel they have been unable to resolve the matter directly with the management, they may choose to abstain or vote against the resolution, but will always disclose their reasoning in Chelverton’s published quarterly Shareholder Engagement and Voting Reports.

Reporting

The managers offer extensive ESG Reporting.

Chelverton publish an annual Responsible Investing Policy pack. This pack includes the ESG Policy that guides ESG integration, and the Shareholder Engagement and Voting Policy and annual Engagement Plan that together detail the principles and objectives of stewardship.

Engagement and Voting Records are published quarterly and a UK Stewardship Code Report is submitted annually to the Financial Reporting Council (FRC).

Finally, an annual report is submitted to the United Nations-backed Principles of Responsible Investing (PRI).

All policies are reviewed annually with revisions approved by Chelverton’s Board of Directors.

Industry Participation

Chelverton champions the needs of small and mid-sized companies in policy design and the development of ESG management and reporting frameworks. The managers target consultations that can help smaller companies and their niche investors to adopt frameworks and standards, demonstrating their sustainability strengths and the important contribution smaller companies are making to the delivery of more sustainable business practice.