Investments & ISAs Overview

This Fund invests in the following ten sustainability  themes:

Environmental

• Cleaner Energy - sources of energy that help pave the way to a ‘hydrogen economy’
• Efficiency - products and processes that reduce energy consumption
• Environmental Services - goods and services that improve the quality of the environment and reduce pollution and waste
• Sustainable Transport - shifting to less polluting forms of transport, and cleaner transport technologies
• Water Management - managing and conserving water, and minimising pollution

Social

• Health - goods and services that help people live longer, healthier lives
• Knowledge - supplying educational goods and services
• Quality of Life - goods and services that promote sustainable lifestyles among all age groups
• Safety - minimising the risk of safety incidents at work, at home and in the community
• Social Property & Finance - providing property for social benefit, access to housing, regeneration, and better and wider access to financial services

This fund also evaluates companies on their corporate responsibility practicies, assessing them on a range of generic as well as sector specific CR issues which falling within four broad categories:

Corporate Standards e.g.

• Corporate governance policies and performance
• Ethical business policies and performance

Workplace e.g.

• Employee involvement and relations
• Equal opportunities and diversity
• Health and safety policies and performance

Social e.g.

• Human rights in business operations and supply chains
• Access to essential goods
• Community impacts

Environmental e.g.

• Environmental policies, management systems and disclosure
• Management of climate change, pollution, resource use and biodiversity

Impact on people

• Alcohol - companies involved in the production of alcoholic drinks or which generate more than 10% of their turnover from its sale
• Armaments - companies involved in the sale or production of strategic goods or services for military weapons or operations
• Gambling - companies with activity related to gambling, including the National Lottery and ownership or operation of betting shops, horse and greyhound racing tracks, licensed bingo halls, casinos or gaming clubs
• Irresponsible marketing - companies that have consistently had public complaints upheld against them by the Advertising Standards Authority (ASA) or have irresponsibly marketed products, such as breast milk substitutes, to developing countries
• Oppressive regimes - companies with subsidiaries or associated interests which support the activities of oppressive regimes, or companies which use forced labour are avoided
• Pornography - companies that publish, print or distribute newspapers or magazines, or distribute films or videos, classed as pornographic
• Tobacco - companies that engage in activities related to the production of tobacco products or generate more than 10% of turnover from tobacco sales

Impact on the environment

• Chemicals: We avoid companies which manufacture, store, wholesale or retail chemicals or products containing chemicals which are subject to bans or severe restrictions in major markets around the world or referenced by internationally agreed lists (e.g. the Rotterdam Convention) and seek at all times to operate to the highest standards available
• Greenhouse gases - companies generating high emissions of carbon dioxide, including the extracting, refining or distribution of fossil fuels (except natural gas), oil exploration and distribution and fossil fuel power stations
• Mining - companies directly involved in mining or quarrying
• Nuclear power - companies involved in the uranium cycle, treat radioactive waste, or supply nuclear related equipment or services for constructing or running nuclear power plants or facilities
• Ozone layer - companies that make, sell or use ozone depleting chemicals
• Road building - companies generating more than 10% of turnover from this area
• Tropical hardwood - companies active in the extraction, clearing, processing, or import of tropical hardwood products
• Water pollution - companies constantly exceeding discharge consents

Impact on animals

• Animal testing - companies which manufacture pharmaceuticals, medicines, vitamins, cosmetics, soaps or toiletries using animal testing
• Fur - companies involved in the sale or manufacture of animal fur products
• Genetic engineering - companies whose primary activity is research into life forms involving the transfer of genes across species and alteration of plant or animal genes for commercial use
• Meat and dairy production - any companies involved in the production or processing of meat/poultry or dairy products or eggs, or whose primary activity involves their sale, are avoided

The Fund has a policy of actively voting its shares in all geographies where possible, to promote high standards of corporate governance and corporate responsibility.

Voting information for the SRI funds is reported in the Eurosif Transparency Guidelines.

The investment team, along with Henderson’s Corporate Governance team, engages with each company to fully understand and evaluate the company’s corporate responsibility, its business standards, workplace and social impact, as well as corporate stewardship. As part of the team’s detailed fundamental research each new investment has a 10-point checklist which covers areas such as the quality of the management and business standards to assess the return potential of the investment. 

All companies assessed for inclusion in the Fund must demonstrate acceptable management of their corporate responsibility. Rising expectations of business conduct from regulators, customers, employees and society at large, are making CR of strategic importance for modern management. Henderson’s evaluation provides a rigorous way of understanding performance in these areas, revealing value or risk often ignored by conventional investors.

A structured process is used for evaluating company practices in four main CR “clusters”, which each cover a range of environmental, social and governance (ESG) matters. These clusters are business standards, environment, stewardship and workplace and social.  Henderson has developed a CR analysis framework containing core and sector-specific issues against which corporate practices are measured. Each stock is scored within the four clusters and labelled as: leading, integrating, developing, reacting or resisting. Additionally, flags highlighting bribery, human rights and supply chain concerns are also automatically generated and highlight where further investigation might be needed. In assessing the company’s management of a specific ESG issue, the team evaluates: its transparency and reporting on the matter; the extent and quality of the policies and systems in place; and how the company actually performs in terms of achieving its commitments on the specific CR issue.

The investment team team uses a variety of resources to conduct the CR analysis. These include:

ESG research from organisations such as EIRiS, Innovest, ISS/Risk Metrics, and Trucost,

• Relevant company literature
• News-flow information from organisations such as Factiva, as well as free news-flow services
• Direct dialogue and interaction with stakeholders such as companies, NGOs, regulators, financial brokers

Fundamental research and corporate responsibility analysis is conducted by the Global Equities investment team. Henderson has also partnered with industry leading ethical research company, EIRiS, to undertake additional detailed, ethical, environmental and sustainable analysis on the companies the investment team are researching to ensure they adhere to the fund’s strict ethical criteria.

 With over 50 ethically focused research analysts, EIRiS is one of the largest sustainable, responsible and ethical research companies globally. The additional benefit of research into over 3000 companies provides the investment team with detailed reports into a company’s activities, to ensure adherence to the Fund’s strict ethical criteria. In addition, EIRiS undertakes bespoke research on companies the investment team have highlighted as potential candidates for inclusion in the Fund, should they not already be covered by EIRiS.

 Once a company has passed the criteria and approved by EIRiS, the investment team also undertakes an evaluation of the company’s corporate responsibility, its business standards, workplace and social impact, as well as corporate stewardship.

 The final stage of stock selection is the fundamental research. The investment team conducts a 360⁰ review of the business environment - the companies with whom it interacts - and constructs a proprietary company model to forecast future cash flow and earnings generation. The team is searching for investments where they can model an earnings outcome significantly different from consensus..

Henderson believes the team’s strict investment criteria and the two-way partnership between EIRiS and the Henderson investment teams leverages the best ethical and investment expertise, providing investors with a complete global SRI solution.

A stock can be sold from the portfolio for either ethical or fundamental reasons.

 Ethical criteria: if it is discovered that a company breaches any of the ethical exclusion criteria set out in the fund due to an acquisition or new business area it will be sold from the fund. Also, if a company changes its approach to corporate responsibility which the Global Equities team believes is significantly detrimental to the investment case the stock will also be sold from the fund.

Fundamental: if a stock’s share price reaches the investment team’s target price or if the fundamental investment case is undermined the stock will also be sold from the fund.

 In all cases the sale of a stock will be undertaken within a reasonable timeframe minimising any impact on fund performance.

www.henderson.com/sri

£262.8m (12/12)