Investments & ISAs Overview

The fund seeks to invest in companies that positively contribute to the following:

Impacts on people

• Community involvement - companies active in the community with programmes that may include staff secondment, support of Business in the Community, the Per Cent Club or charitable giving and fundraising
• Corporate governance - companies which demonstrate accountability to their investors
• Education and training - companies supplying education or training services to enhance the quality of life and opportunity in the workplace
• Employee relations - companies with good industrial relations records and policies that include, for example, measures to encourage employee participation, support for women and minorities, and Employee Share Ownership Plans
• Healthcare services - companies supplying medical equipment, nursing services, care for the elderly or holistic therapies
• Health and safety equipment - companies supplying equipment that minimises the risk of industrial accidents and improves workplace conditions and supplying specialist equipment that have a health, safety or environmental application
• Policy statements, audits and openness - companies with clear policies and systems of accountability. For example, those that publish a statement of business ethics or code of conduct, have environmental management systems or conduct social audits and make them publicly available, and respond fully to external enquiries
• Progressive relationships and strategy - companies that clearly outline and explain the environmental implications of their corporate strategy.
• Companies which actively promote the interests of staff, such as maternity/paternity leave, counselling services; customers, for example those with eco-labelling of products; suppliers, such as those implementing audits for environmental performance and fair trade; and the public, such as those which contribute to community activities

Impacts on the environment

• Energy conservation - companies engaged in the supply of energy conservation services such as domestic or industrial insulation, or electronic energy efficiency devices
• Mass transit systems - companies engaged in the provision of bus and rail services, or manufacture of bicycles, buses and trains
• Multimedia and telecommunications - companies which are directly involved in transforming the use of information, communication or ways of working, including developments in the internet, CD-ROMS, tele-working and mobile telephony
• Pollution monitoring/pollution control equipment - companies engaged in the manufacture, supply or operation of pollution control equipment or monitoring devices
• Process control equipment - companies engaged in the manufacture or supply of efficiency improvement devices that provide water, energy or materials savings
• Recycling services - companies engaged in the collection and recycling of waste or which use a high proportion of recycled waste in their products
• Renewable energy - companies involved in the generation of electricity from renewable resources such as wind, solar and hydropower
• Water management - companies involved in the protection and provision of water supplies, or provide water purification services or equipment

Impacts on animals

• Textiles - companies developing alternative textiles to leather
• Vegetarian foods - companies active in processing or retailing vegetarian foods

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

The fund will not invest in companies involved in the following:

Impacts 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

Impacts on the environment

• Contentious industries - investments will not be made in companies in contentious industries such as mining, oil, chemicals, car manufacture, or in pharmaceutical companies using animal testing, unless the company can demonstrate an outstandingly positive response towards environmental and social concerns
• Chemicals - the fund avoids 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
• Nuclear power - companies which are involved in the uranium fuel cycle, treat radioactive waste, or supply nuclear related equipment or services for constructing or running nuclear plant or facilities are avoided
• Ozone layer - companies that make or sell ozone depleting chemicals or users of ozone depleting chemicals that have yet to set dates for their phase-out are avoided
• Road building - companies generating more than 10% of turnover from road building are avoided
• Tropical hardwood- companies active in the extraction, clearing, processing or import of tropical hardwood products are avoided
• Water pollution - companies consistently exceeding discharge consents are avoided

Impacts on animals

• Contentious industries - investments will not be made in companies in contentious industries such as mining, oil, chemicals, car manufacture, or in pharmaceutical companies using animal testing, unless the company can demonstrate an outstandingly positive response towards environmental and social concerns
• Fur - companies involved in the sale or manufacture of animal fur products are avoided
• Genetic engineering - companies involved in the deliberate release of genetically modified organisms (e.g. animals and plants) are avoided. Medical and industrial applications in a contained setting will be assessed on a case-by-case basis.

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

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