FAM's approach to Responsible Investing

At FAM, we believe companies that integrate responsible investing factors effectively into their operations can enhance the quality of our investment portfolios. This allows, FAM to better manage risk – without impacting the diversification attributes of a fund – and therefore, generate greater sustainable risk adjusted returns for our unitholders. We take a four – pronged approach in implementing our strategy:

  1. PRODUCT EXCLUSIONS
  2. ESG RATING
  3. CONTROVERSY SCORE
  4. CORPORATE ENGAGEMENT
"Our Fund objectives have not changed. We are focused on long term excellence in risk adjusted returns for our clients. We believe that the quality improvement, and broader perspective of risk, is consistent with achieving this goal."

– Suzann E. Pennington, CFA, ICD.D
Chief Investment Officer, Foresters Asset Management
 

Foresters Asset Management ("FAM")

FAM historically considered responsible investing (RI) informally when making investment decisions. Starting in 2018, FAM formally integrated a number of responsible investment factors including, Environmental, Social, Governance (“ESG”) considerations into all our proprietary funds’ investment processes, including the imaxx mutual funds. Not only do we feel is it the right thing to do and makes sense as an overall fit from a values perspective, the evidence suggests that incorporating responsible investing into investment decisions can increase long-term risk adjusted returns in properly diversified portfolios.

 

Foresters Financial commitment to responsible investing

  • 144 year old community-focused organization
  • Three million clients and members in Canada, U.S. & United Kingdom
  • Philosophy of being, “Driven to share, not shareholder driven”
  • Helps families build financial security and family wellbeing; help each other; and make a difference to their community
  • Invest millions of dollars annually, principally supporting causes that enrich the lives of families and communities
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1. PRODUCT EXCLUSIONS – MATERIAL EXPOSURE

First, we exclude investments with significant exposure to the following industries: tobacco, gambling, adult entertainment, and military weapons. Nuclear Power and Alcohol are not excluded, though higher standards are imposed regarding; governance, policies, controversies, and operations. The exclusion list is regularly monitored, and assessed, and subject to change.

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2. ESG RATING – RELATIVE TO APPROPRIATE GLOBAL PEERS

We then consider a company’s ESG rating:

  • Securities are ranked relative to global industry peers
  • The worst ranked securities are put on a restricted list for manual review:
    • Automatic restriction for worst 10%
    • Monitor worst 20%
  • We manually review securities not covered by third party systems
  • Flag new information that may not be captured in rating system
  • Direction of change?
 
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3. CONTROVERSY SCORE – MEASURE OF EVENT RISK

We create and monitor a list highlighting the significant impacts and risk to the company, its shareholders or to society, where the company is directly responsible for misconduct such as fraud, corruption or even high waste emissions, etc. Controversy score is assigned a higher weight in flagged industries, for example alcohol and nuclear.

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4. CORPORATE ENGAGEMENT – INFLUENCE POSITIVE CHANGE

Finally, we actively engage with companies where we believe we can make a material impact. Specifically:

  • If there is reasonable expectation of improving company’s behaviour and rating over the next 12-24 months we engage in management or the board
  • Then monitor and formally review to ensure improvement

 

Implementation – Responsible Investing Committee

FAM’s RI analyst creates and monitors a list of excluded and flagged companies, and reviews companies of interest with the investment committee.

COMMITTEE CONSIDERATIONS:

  • Rationale for ratings and relevance to company/industry
  • Securities that are not formally ranked (e.g. project financing)
  • New information not yet included in ESG reporting
  • Can we influence positive change? Is there an opportunity for engagement?

Final thought

"We’re not changing the world, the world is changing"
- ANONYMOUS.

FAM is committed to being a leader in the field of responsible investing, which is in line with the values we, and our stakeholders, have long held dear. In addition, it helps to reduce unintended consequences by identifying early warning signs within companies that could later lead to significant loss in shareholder & unitholder wealth. In addition, there is client demand for responsible investing products, and is a topic that continues to gain more interest from the investing public, investment community, and businesses themselves. Ultimately, it’s the right thing to do!