Hamon Asian Funds – Hamon Asia ESG Focus Fund (“Sub-Fund”) – Additional Information
The investment objective of the Sub-Fund is long-term capital appreciation. The Sub-Fund seeks to achieve its objective by investing at least 75% of its total assets in listed equity securities of companies domiciled in, or exercising the predominant part of their economic activities in the Asian region. The Sub-Fund adopts a strategy under which a minimum of 75% of the Sub-Fund’s net assets will be invested in securities or other investments of companies which meet the ESG criteria.
The Investment Advisor will i) focus the Sub-Fund’s these investments (i.e. at least 75% of the net assets of the Sub-Fund) in the core sustainability areas of green energy, digitalization & technology, sustainable finance, environment protection, sustainable production, health and society and decarbonisation (including “early-stage ESG” companies which fall within these core sustainability areas but, may not score the minimum score point of 50 under the ESG scorecard); and ii) invest at least 75% of its net assets in companies which score at least the minimum score of 50 points under the ESG scorecard (including companies which are not within the core sustainability areas but, score at least the minimum score of 50 points under the ESG scorecard). At least 75% of the Sub-Fund’s net assets will be in both the core sustainability areas and meet the minimum score of 50 points under the ESG scorecard.
The Sub-Fund may also hold equity of “early-stage ESG” companies (i.e. Asian companies with good fundamentals and expected returns, have started to make efforts towards understanding and developing a sustainability strategy, to improve their business and disclosures, but do not yet have enough ESG related data) up to a maximum of 25% of total assets on the expectation that, after focused engagement with these companies, they would adopt ESG best practices to improve or green their operations, achieve a general standard of disclosures and attain the minimum internal score for inclusion in the Sub-Fund.
In addition to the investments in the core sustainability areas, the Sub-Fund will also be managed using Hamon’s ESG Scorecard methodology. Categories within the ESG Scorecard, include but are not limited to, company fundamentals, management and governance analysis, environmental data and social practices, long-term climate sustainability goals, third party ESG score improvements, compliance to global reporting standards such as GRI, are each weighted and scored.
As part of Hamon’s ESG Scorecard methodology, a score out of a 100 will be generated for each company. The minimum score is 50 points out of 100 for the investment to be included in the portfolio under the ESG Scorecard. At least 75% of the net assets of the Sub-Fund will be required to achieve the required minimum cut-off score in order to be included in the portfolio.
Through its ESG evaluation, the Investment Advisor seeks to avoid companies, sectors and industries it believes to have adverse individual, social, or environmental impacts. The Investment Advisor will generally avoid companies that derive the majority of their revenues from areas considered socially harmful and not socially responsible investment (SRI) such as gambling, alcohol, tobacco, offensive weapons and some major polluters in coal, energy and mining.
However, as ESG is in its nascent stage in Asia, the Investment Advisor wants to emphasize positive behaviours and practices within these companies such as moving their business models away from these negative businesses or green their operations leading to improving ESG factor assessments, rather than solely based on broad-based negative screens in selecting investments. The Sub-Fund may therefore, make investments in those companies (for example, companies considered polluters in energy, metals and mining, etc.) which follow best practices towards greening their operations and can demonstrate implementation of “circular economy”. A “circular economy” is a regenerative economic model where companies manage their growth and resource consumption by increasing resource productivity, reducing waste and generating carbon offsets.
The Investment Advisor will perform due diligence of the ESG-related attributes of the Sub-Fund’s underlying assets, undertaking fundamental analysis of individual companies along with qualitative and quantitative analysis of material ESG factors.
The fundamental analysis includes, but is not limited to, financial statement analysis covering growth, margins, profitability, capital allocation, balance sheet and financial ratios; market and industry dynamics, sustainable competitive advantages, solid and reputable management, well run operations and ability to manage business risks.
The qualitative analysis of ESG factors involves evaluating risk-return drivers and factors, which are believed to be material to the business, financials and market performance of a company. The Investment Advisor, in the qualitative analysis, evaluates a company using factors within the ESG categories. For example, factors within (i) the environmental category include greenhouse gas and CO2 emissions, energy efficiency and improvements; (ii) the social category include company’s corporate social responsibility activities, human rights record and actions, selling practices and market behaviour; and (iii) the governance category includes the business ethics of the company, board suitability and supervisory efforts.
The quantitative analysis includes assessing ESG related disclosure improvements over the previous year’s reporting, compliance with Global Reporting Initiative (GRI) standards, and comparison of third party ESG scores of a company from well-known service providers with its peers regionally and globally. When assessing these ESG factors, the Investment Advisor will engage with the companies, in order to learn more about their disclosure improvements and general ESG practices.
The Sub-Fund utilizes ESG research, reports, screening, ratings and/or analysis from third party index providers or ESG consultancies. When there is a lack of standardized taxonomy of ESG evaluation methodology, evaluation of a company’s ESG scoring using the ESG Scorecard involves the Investment Advisor’s subjective judgment. In its assessment, the Investment Advisor is dependent upon information and data from ESG Data Providers, which may be incomplete, inaccurate or unavailable. As a result, there is a risk that the Investment Advisor may incorrectly assess a security or issuer.
The Hamon ESG Scorecards, prepared by the Investment Department of the Investment Advisor, will be reviewed periodically, at least on an annual basis, by the Compliance Department to ensure that scorecards are in order and maintained as per the scorecards’ methodology.
An ESG Committee, comprising of the Investment Advisor’s Responsible Officer, Portfolio Manager, and representatives from the Investment Department and Compliance Department will discuss and perform periodic assessment, at least annually, to assess how the Sub-Fund has attained its ESG focus and if the Sub-Fund complies with the Investment criteria as set out in the Sub-Fund’s prospectus.Back to Top