An Introduction to the ERIG Index

Providing Access toResponsible Investing

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Table of Contents

An Introduction to the World of Responsible Investing......................................................... 02

Evergreen Consultants' Approach to Responsible Investing................................................ 05

How is Evergreen Consultants' ERIG Index applied to your portfolio.................................. 10

Appendix One - The Responsible Investment Spectrum Defined.......................................... 12

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An Introduction to the World of ResponsibleInvesting

What is Responsible Investing?

Responsible Investing (RI) is defined by thePrinciples for Responsible Investments (PRI)“as a strategy and practice to incorporateenvironmental, social and governance (ESG)factors in investment decisions and activeownership”. It is typically used as theumbrella term for the various approachesthat incorporate ESG factors that aim toachieve different RI outcomes through time.These outcomes range from risk mitigationthrough to having a direct impact on societyor the environment. Before going into thetechnical aspects of defining ESG and thevarious approaches, it is worth understandingthe history of RI and the evolution of itsformalisation to its current form.

A brief history of RI

RI has been formally recognised as firststarting in 1971 with the launch of the PaxWorld Fund – the first socially responsiblefund in the US. Through time, however, it hasbeen implemented in different ways, oftenrequiring a catalyst of a negative event thatcaused significant public activism. In the1980s, there was widespread disinvestment

from South Africa as a protest to the Apartheidsystem, and in 1989 the Valdez Principleswere formed following the Exxon Valdez oilspill. As the evolution of activism becameentwined within corporate stewardship,companies faced pressure from campaignersand shareholders to change, with the mostvisible example being GlaxoSmithKline cuttingthe costs of AIDS drugs in developingcountries as a result of the pressure it facedfrom its shareholders.

These events have shown that, while notformalised in a systematic practice, RI hasbeen utilised in various guises through timeuntil its mainstream adoption on the back ofthe formation of the PRI.

What is ESG?

ESG refers to Environmental, Social andGovernance. These three areas have bothinternal and external factors that relate directlyto the measurement of sustainability and itsimpact.

[1] UNPRI – What is Responsible Investment?https://www.unpri.org/an-introduction-to-responsible-investment/what-is-responsible-investment/4780.article

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Principle 1: We will incorporate ESG issuesinto investment analysis and decision-makingprocesses.Principle 2: We will be active owners andincorporate ESG issues into our ownershippolicies and practices.Principle 3: We will seek appropriatedisclosure on ESG issues by the entities inwhich we invest.Principle 4: We will promote acceptance andimplementation of the Principles within theinvestment industry.Principle 5: We will work together toenhance our effectiveness in implementingthe Principles.Principle 6: We will each report on ouractivities and progress towards implementingthe Principles. [2]

Who and what are the PRI?

In 2006, with the support of the UnitedNations (UN), the PRI was launched as “aglobal organisation to encourage and supportthe uptake of responsible investmentpractices in the investment industry”. Investors who become signatories to theUNPRI commit to implementing the sixPrinciples for Responsible Investment acrosstheir organisation. The six Principals are avoluntary and aspirational set of investmentprinciples that offer a menu of possibleactions for incorporating ESG issues intoinvestment practice. The UNPRI supports thesignatories’ efforts through the following:

[2] UNPRI – What are the Principles for ResponsibleInvestment? https://www.unpri.org/pri/what-are-the-principles-for-responsible-investment

The Sustainable DevelopmentGoals [3]

Since the launch of UNPRI in 2006, thepreamble to the Principles has said: “Werecognise that applying these Principles maybetter align investors with broader objectivesof society.” Never before have these “broaderobjectives of society” been more clearlydefined than in the Sustainable DevelopmentGoals (SDGs).

Every country in the world has agreed on asustainability agenda, covering three broadareas – economic, social and environmentaldevelopment – and comprising 17 global goals(the SDGs), further developed in 169 targets,to be reached by 2030. The launch of the UN SDGs in 2015 has madeclear that the global community of countriesrelies heavily on the private sector to solvesome of the most urgent problems the world isfacing. Both companies and institutionalinvestors are being asked to contribute to theSDGs through their business activities, assetallocation and investment decisions.

The SDGs' relevance to responsibleinvestors is grouped into five overarchingcategories:

[3] Sustainable Development Goals – The SDG InvestmentCase - https://www.unpri.org/sustainable-development-goals/the-sdg-investment-case/303.article

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1. The SDGs are the globally agreedsustainability framework.2. Macro risks: The SDGs are anunavoidable consideration for “universalowners”.3. Macro opportunities: The SDGs will driveglobal economic growth.4. Micro risks: The SDGs as a riskframework.5. Micro opportunities: The SDGs as acapital allocation guide.

The SDGs and underlying targetsprovide a common way of referencing themove towards a more sustainable worldand can thus strengthen investors’ ESG riskframeworks.

Responsible InvestmentAssociation Australasia (RIAA)

While the UNPRI is a global organisation,operating with a broader membership base,the implementation practicalities for domesticfinancial services providers have their ownnuances, and also require an accessibledomestic entity to spur them on their journeytowards responsible investing. RIAA champions responsible investing and asustainable financial system in Australia andNew Zealand. RIAA is dedicated to ensuringcapital is aligned with achieving a healthysociety, environment and economy.

With over 350 members managing more than$9 trillion in assets, RIAA is the largest and

Providing a strong voice for responsibleinvestors in the region, includinginfluencing policy and regulation to supportlong-term responsible investment andsustainable capital markets;Delivering tools for investors andconsumers to better understand andnavigate towards responsible investmentproducts and advice, including running theworld’s first and longest running fundcertification program, and the onlineconsumer tool Responsible Returns;Supporting continuous improvement inresponsible investment practice amongmembers and the broader industry througheducation, benchmarking and promotion ofbest practice and innovation;Acting as a hub for members, the broaderindustry and stakeholders to buildcapacity, knowledge and collective impact;and Being a trusted source of informationabout responsible investment.

most active network of people andorganisations engaged in responsible, ethicaland impact investing across Australia andNew Zealand. Their membership baseincludes super funds, fund managers, banks,consultants, researchers, brokers, impactinvestors, property managers, trusts,foundations, faith-based groups, financialadvisers and individuals.

RIAA achieves its mission through:

Evergreen Consultants became a member ofRIAA in 2020.

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Evergreen Consultants’ Approach toResponsible Investing

Top-down vs bottom-upperspectives of rating fundmanagers The evolution of RI related company leveldata analytics has been phenomenal in itsspeed and depth. Companies now reportincredibly detailed information aboutoperations and a significant amount of workis undertaken by companies such asSustainalytics and MSCI to gather,synthesise and compare companies usingthis information.

These systems allow market participants,such as fund managers, to evaluate mostcompanies from a bottom-up perspective ondifferent ESG metrics. Managers can use thisinformation to evaluate companies and cancollate company information and come upwith an RI profile for a fund at any time. ThatRI profile can then be used to prove the‘greenness’ of a fund or manager. An analogous example of this is the P/E ratioof a portfolio. We can collate the P/E of everystock in a fund and in that way, build the P/Efor the fund.

At Evergreen, we think of this approach asbeing a good way to check a manager’sportfolio but it is not sufficient to prove thestyle. In other words, a portfolio with a lowP/E does not mean a manager is a valuemanager. And a portfolio with a certainsustainability score does not mean amanager is an RI manager. It is a necessary,but not sufficient, condition to prove the style.

Evergreen has chosen instead to use a top-down assessment. This seeks to eliminate anypotential 'greenwashing'[4] throughunderstanding two main facets of a manager'sreported RI capabilities: intent versus action. As a result of this top-down perspective, ourassessment of a manager is heavily skewedtowards evaluating the depth and breadth oftheir actual process (actions), with recognitionof the alignment to their beliefs about RI(intent).

Our top-down assessment effectively analysesa manager’s approach to RI, as opposed tothe fund portfolio. We think this is a betterapproach and is analogous to traditionalmanager research – we look at what themanager does and compare this to others inthe marketplace. Analysis of the manager’s portfolio (thesustainability score) can play a part, but it isnot the complete analysis in our view.

The RIAA Spectrum As part of our internal work on RI, Evergreenbecame a member of RIAA. After spendingtime thinking about an approach to evaluatemanagers, we decided to adopt the RIAAResponsible Investment Spectrum (theSpectrum).

[4]The Guardian - The troubling evolution of greenwashinghttps://www.theguardian.com/sustainable-business/2016/aug/20/greenwashing-environmentalism-lies-companies

We believe the framework communicates thedefinitions and nuances between approachessuccinctly, as well as captures the extent ofthe intentions of each approach.

The features and outcomes are also tied intothe framework in a manner that shows theescalation in the contribution towards betteroutcomes that are not only financial innature. As a result, we have chosen to usethis framework to assess managers. The Spectrum consists of seven categories,which are captured in the figure below, andare described in brief detail. In AppendixOne, we provide in-depth descriptions ofeach category. ESG Integration – The inclusion of ESGrisks and opportunities within financialanalysis and the investment decision-makingprocess.Negative screening – Excluding certaincompanies, sectors, issuers or countries

based on activities that are deemedunacceptable in terms of downside risk orvalues misalignment.Norms-based screening – Screeningof companies and issuers that do not meetminimum standards of business practicebased on international norms andconventions.Active Ownership – Executing shareholderrights and fulfilling fiduciary duties to signaldesired corporate behaviours.Positive Screening – Intentionally tilting theportfolio towards solutions or targetingcompanies or industries with better ESGprofiles.Sustainability-themed Investing –Specifically targeting investment themes e.g.sustainable agriculture, low carbon, Paris orSDG-aligned investments.Impact Investing – Investing to achievepositive social and/or environmental impactsand demonstrating through measurementand reporting on the investor contribution andachievement of outcomes.

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Responsible Investment Spectrum

Active Ownership

ESG Integration

Negative Screening

Norms-based Screening

Positive Screening

Sustainability-themed

Investments

Impact Investing

Avoids Harm

Benefits Stakeholders

Contributes to Solutions

Excludingsectors,

companies,countries or

issuers basedon a mis-

alignment ofvalues or

downside risk

Applying ESGrisks and

opportunitiesto financialanalysis andinvestmentdecisions

Screenscompaniesand issuersbased onbusiness

practices andbeliefs

Appropriatelyusing

shareholderrights andfiduciaryduties toguide a

companyusing ESGguidelines

Source: Derived from the Responsible InvestmentAssociation Australasia

Realigning aportfolio tospecifically

target betterESG profileseither at the

companylevel or

industries

Specificallytargeting

investmentthemes e.g.Sustainableagriculture,

greenproperty, ‘lowcarbon’, Paris

or SDG-aligned

Investmentsthat achievemeasurablesocial and

environmentalimpacts and

outcomes

44% 12.6% 0% 36.5% 0.2% 5.8% 0.9%

Percentage of Fund Managers who have adopted each capability

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The high-level beliefs of the managerabout each RI capability that they offer.(Intent)The deeper evaluation of each RIcapability that they offer, with questionsdesigned to establish the depth andbreadth, strengths, and weaknesses.(Action)

The Evergreen ConsultantsManager Grading Framework In the process of understanding thelandscape of managers’ RI capabilities, therewere numerous thought-provoking questionsthat led us to taking an approach of not ratinga manager on a single score, but ratherfocussing on which capabilities they offeredand their strengths (or weaknesses) in each.We have thereby created the EvergreenResponsible Investment Grading Index(ERIG Index). The nature of the grading scale providesroom to offer a multi-faceted look at amanager’s RI capabilities, and be robustenough to represent the manager in a moreaccurate manner than one simple score. To build the grading framework, we askedmanagers to complete a questionnaire, whichwe compiled using information and questionsfrom both the UNPRI and RIAA. Thequestionnaire was designed based on theadoption of the the seven RI capabilities ofthe RIAA Spectrum and managers wereasked to complete each section according tothe capabilities that they offered.

The questionnaire has two main componentsper RI capability:

The questions were designed to be closed-ended that is, in the form of Yes/No answers,to make the evaluation across managerssystematic. We also allow room for themanagers to substantiate their answers.

The grading system has been primarilydeveloped from questions set out within theUNPRI frameworks for selecting investmentmanagers through to evaluating their equitiesand fixed income security selection.

The Universe of Funds

In the first instance, the questionnaire wassent to all managers used within clientmodels and the survey was quickly extendedto all the ‘sustainable’ fund options availableon the major platforms we work with. At themoment, we are surveying over 300 funds. Managers answered the questionnaire in aself-rated fashion and sent throughsupplementary documents that supportedtheir answers for the relevant sections of thequestionnaire. Evergreen then audited theanswers and documents, and madesubjective adjustments to the scores whererelevant. For example, in the case ofmanagers who selected Negative Screeningas a capability, yet only excluded alcohol,gambling, tobacco and weapons, these weredeemed common screens across most equitymanagers. As a result, the manager couldnot claim to have a proper negativescreening capability compared to fundswhich eliminated more sectors or industries.

This questionnaire will be sent to managerson an annual basis, unless there aresignificant changes to their processes thatwarrant an interim rating review. We also

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intend to significantly increase the number offunds we survey each year as part of ourongoing due diligence.

The combination of the scores from thequestionnaire for the intent and action ofeach RI capability within a manager is thentaken and a score is determined out of themaximum potential points available for eachcapability.

The ERIG Index Questionnaire

The Evergreen Consultants Manager RIQuestionnaire is made up of the followingcomponents:

1. Instructions Tab – allows a manager toselect which RI capabilities are relevant tothem for rating themselves.2. RI Identity Tab – The manager answersquestions based on their beliefs (Intentions)for each relevant RI capability.3. Questions Tabs related to each RICapability – This is where the manager hasto demonstrate their actions in terms of their

respective RI capabilities ranging from ESGIntegration to Impact Investments.4. An RI scorecard – the scores from eachcapability and the RI identity tab are fedthrough to this sheet which allowsfor a summarised view of the strengths andweaknesses across capabilities.

Here is an example of the scorecard that isproduced from the results of thequestionnaire per manager. The ‘intent’section is how they perceive their RIinvesting to be, the ‘action’ section is how itis.

The columns refer to:

1. The first column references the tabs in theworkbook relating to the RI identity (RIAAspectrum) and capabilities.2. The first points column are the points amanager has scored for the relevant RIcapability.3. The second column is the maximumpotential points a manager can score for thatsection.

This score per capability is then convertedinto a whole number (rounded down) asshown in the next figure.

Table 1. The ERIG Index Scorecard

The grading system across the managers’ RIcapabilities remains the same on a scale of 1to 10 to make it easily comparable betweenmanagers within sectors.

The key mention here is that managers areonly comparable within a sector i.e., anAustralian Equity manager vs an AustralianEquity manager in terms of their RI capabilityscores are directly comparable.

Table 4. Example of a portfolio of manager grades

Intent

Action

Manager Score

Max points

Manager Rating

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Table 2. ERIG Index

Table 3. ERIG Index scale

Active Ownership

ESG Integration

Negative Screening

Norms-based Screening

Positive Screening

Thematic Investing

Impact Investing

Active Ownership

ESG Integration

Negative Screening

Norms-based Screening

Positive Screening

Thematic Investing

Impact Investing

(Total manager points per capability / max points per capability) x 10 = whole number rating (rounded down)

Active Ownership

ESG Integration

Negative Screening

Norms-based Screening

Positive Screening

Thematic Investing

Impact Investing

Manager A

Manager B

Manager C

The blanks indicates a manager not possessing that RI capability

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How is Evergreen Consultants' ERIG Index applied to your portfolio?

Evergreen has built our grading frameworkinto our proprietary software, GreenVUE. Asa client, your existing portfolio withinGreenVUE will now have the option to view its RI capabilities.

The following two examples provide sampleportfolios with their ESG grades. One shows astandard portfolio while the other shows asustainable portfolio. This visual display canbe shown to clients and aid in making RIdecisions for a greener portfolio.

ERIG Index Example: Current Portfolio

ERIG Index Example: Sustainable Portfolio

Active Ownership

ESG Integration

Negative Screening

Norms-based Screening

Positive Screening

Thematic Investing

Impact Investing

Manager AManager BManager CManager DManager EManager FManager GManager HManager IManager JManager KManager LManager MManager NManager OManager PManager QManager RManager SManager TManager UManager VManager WManager XManager YManager Z

Manager AAManager BBManager CC

Active Ownership

ESG Integration

Negative Screening

Norms-based Screening

Positive Screening

Thematic Investing

Impact Investing

Manager AManager BManager CManager DManager EManager FManager GManager HManager IManager JManager KManager LManager MManager NManager OManager PManager QManager RManager SManager TManager UManager VManager WManager XManager YManager Z

ESG Integration

Negative Screening

Norms-based Screening

Positive Screening

Thematic Investing

Impact Investing

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Average Scores within therated manager universe

From the table above, we note that Australia and Global Equities together have just under50% of the universe of funds that have beenrated.

The next three largest sectors are Australian

and Global Fixed Interest, as well as EmergingMarkets.

Due to the initial universe of managers ratedbeing predominantly those of clients’portfolios, the client portfolio’s AustralianEquity – ESG Integration scores would beclose to the average indicated in the tableabove. This will change as we add more fundsto the universe.

Table 5. ERIG Index average grades by sector within the rated manager universe

Source: Evergreen Consultants

Active Ownership

ERIG Index - Average per sector

SectorNumber of

Funds

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Appendix One - The ResponsibleInvestment Spectrum Defined

Figure 5. The RIAA Responsible Investment Spectrum

Source: Responsible Investment Association Australasia

ESG Integration

ESG Integration refers to the practice of theevaluation and explicit inclusion of ESGfactors within investment analysis andinvestment decisions. Historically, ESG wasconsidered more as a risk managementfeature until recent times where theenhancement of returns has been shown as

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a correlated outcome for investors as well.

For Evergreen Consultants, there are four keyareas of focus that allow us to understand thestrengths and weaknesses of a manager’sESG Integration Capability. They are asfollows:

Figure 6. Evergreen Consultants' four key areas of focus in evaluating a manager’s ESG Integration capability

Source: Evergreen Consultants, UNPRI

Alignment of a manager’s investmentphilosophy to its ESG beliefs.

In terms of the four areas of focus above, theESG Investing Practices layer was anadditional layer that was added on to thethree-layer framework created by the UNPRI(shown on the next page). This layerexplores the governance and organisationalarchitecture of the ESG Integration capabilityaimed at understanding the following:

The strength of the ESG team andwhether their recommendations influencethe investment decisions in a significantmanner.The research inputs whether proprietary orthird-party.The strength of the ESG monitoring withinthe risk management team.[5]

[5] UNPRI - Enhancing Relationships and Investment Outcomeswith ESG Insight - https://www.unpri.org/download?ac=4355

Portfolio Construction

Security Selection

Research Stage

ESG Investing Practices

Understanding the level of ESGintegration in constructing the

portfolio e.g., whether ESG risksare assessed at a portfolio level

and relative to the ESG of abenchmark etc.

Understanding the level ofESG integration within its

research process fromcompany questionnaires to

central dashboards etc.Understanding the levelof ESG integrationwithin its securityselection process

across Equities/FixedIncome/both.

Understanding the philosophicalalignment of the firm and its

ESG Beliefs. Its resources andteam strengths

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The UNPRI framework for evaluating theESG integration within a manager, as shownbelow, requires additional mention in terms ofthe high benchmark nature of the questions

that are set within the framework. They havetried to strike a balance between pragmatismand idealism in their quest for setting astandard of measuring managers.

Figure 7. The UNPRI framework for ESG factors within financial analysis

Source: UNPRI

Evergreen Consultants in its development ofits questionnaire has tended to skew towardsthe future trends in RI by ensuring thestandard of questions remains fair, but also

relatively difficult to achieve high scores aswe seek managers who are above averagein terms of their respective RI capabilities.

Negative Screening for Exposures

All weapons (including firearms)

Tobacco Production

Gambling

Fossil Fuel Exploration, mining and production

Pornography production and distribution

Alcohol production and sales

Nuclear power (including uranium mining)

Fossil fuel power generation

Labour rights violations

Human rights abuses

Animal cruelty (e.g. animal testing, live exports)

Environmental degradation (including land, air and water)

Predatory lending

Sugar (high content and/or predatory marketing)

Genetic engineering

Pesticides

Companies that don't pay their fair tax share

Meat and meat products

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Negative Screening

Negative Screening is the application ofexclusionary filters with the aim of explicitlyexcluding companies as part of theinvestable universe. The way investment managers approach thescreening process can range fromsystematic and rigid, through to flexible withthreshold conditionalities depending onrevenue exposures, ESG scores etc.

Typically, passive indexation products thatare badged as “Ethical” in nature are onesthat have strict negative screening across abroad set of categories, with there being no

flexibility in terms of threshold allowances forbusiness revenue exposures in areas that areconsidered unethical.

Evergreen Consultants’ approach inclassifying an investment manageras one with a negative screeningcapability. They must have morecategories than the commonlyexcluded tobacco, gambling, andweapons.

Table 1. Negative Screening Categories

Source: Evergreen Consultants

Typically screened outby most investment

managers

Some managers use a variation ofthresholds such as not more than

10% of revenues

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Norms-based Screening

Norms-based screening, while not widelyused as dedicated products by providers,typically is a sub-category of negativescreening. It excludes companies orgovernment debt on account of any failure bythe issuer to meet internationally accepted‘norms’ such as the UN Global Compact,Kyoto Protocol, UN Declaration of HumanRights, International Labour Organizationstandards, UN Convention AgainstCorruption, OECD Guidelines forMultinational Enterprises.

These are also known as ‘controversyscreens’ or the negative screening of unethicalbehaviour by companies. What we seek inevaluating a manager who is utilising thisapproach is to understand, through real-worldexamples. Its translation into the selection orexclusion of companies as a result of issuesdetected through the investment process.

The following categories provide examples ofthe conventions that Evergreen Consultantsassesses as part of an investment manager’snorms-based screening capability:

Table 2. Norms-based screening conventions

Source: Evergreen Consultants

Norms Based Screening Conventions

The Ten Principles of the UN Global Compact

Principles for Responsible Investments

UN Framework Convention on Climate Change / Paris Agreement

UN Sustainable Development Goals (SDGs)

UN Guiding Principles on Business and Human Rights

International Bill of Human Rights

United Nations Convention against Corruption

International Labour Organization's Fundamental Conventions

Convention on Cluster Munitions

UN Convention on the Rights of the Child

OECD Guidelines for Multinational Enterprises

Ottawa Convention on Landmines

Treaty on the Non-Proliferation of Nuclear Weapons

Typically included as part of

company codes of conduct

/stewardship policies

Yes

Yes

Yes

Yes

Yes

Yes

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Active Ownership

This term is typically referred to asstewardship or shareholder governanceamongst investment managers. It is an approach that is predominantly seenamong equity investment managers, asshareholders have more publicly visibleactions or options for interacting withcompanies compared to fixed incomeinvestors. The methods of interactions with companiestypically involve engagement, proxy voting ora combination of both. Often, investment

managers outsource their proxy votingoperations to companies such as InstitutionalShareholder Services Inc. (ISS) or Regnan,who are well-established providers of servicesinvolving shareholder governance and alsoprovide ESG monitoring services todiffering degrees. Regnan is notable as anESG provider having a 20 year history in ESGadvisory services as well.

From an Evergreen Consultants perspective,when we evaluate managers on their ActiveOwnership capabilities, we are looking at threekey focus areas.

Figure 8. Three key focus areas for evaluating a manager’s Active Ownership capability

Source: UNPRI

Policy

Engagement

Voting

Are the stewardship policies clear in its scope and prioritisation of themes?Is the policy aligned to the investment beliefs of the firm?

Does the manager have clear expectations of companies in terms of theirgovernance relating to issues such as remuneration, stakeholderrelationships, ESG Issues, Labour rights, company culture etc.Does the firm collaborate with other firms on engagement?Does the firm have a defined plan of escalations when it faces issues?

Are the votes systematically tracked and recorded for progress?Does the manager engage with the company prior to the vote to explainits stance and rationale?

Positive Screening

Positive Screening can be done usingdifferent methods to achieve varying levels ofinfluence, which range from a straight-

Whether the manager is targetingcompanies with high ESG scores orimproving ESG scores.

This indicates the spectrum of amanager’s beliefs about RI. Managers who seek improvingscores are often more pragmatic intheir approach, while managers whoseek high ESG scores often havefirm beliefs about sustainableinvesting.

For Evergreen Consultants, when evaluatinga manager’s positive screening capability, wetry to understand the extent of the methodsused by asking questions relating to:

Whether the manager targets specificsectors or themes and/or targets the UNSDG

This allows us to gauge the depth ofthe manager’s sustainable investingcapabilities in terms of how well theyhave aligned themselves to the SDGframework of investing sustainably.

From the portfolio constructionperspective, Evergreen Consultants triesto also establish whether there is amechanistic approach that ties the higherESG scores to a higher weighting in theportfolio (whether it be an absoluteweight or relative to a benchmarkweight).

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forward evaluation of ESG performance on arelative basis, through to positive thematicdevelopments as illustrated in the figurebelow:

Figure 9. Positive Screening methods

Source: UNPRI

Investing in sectors, issuers or projects selected for positive ESGperformance relative to industry peers

Active inclusion of companies within an investment universebecause of the social or environmental benefits of theirproducts, services and/or processes

Positive thematic development such as: transitioning companies,renewable/clean tech, social enterprises or initiatives

Endorsing best-in-class or leaders’ in best practice against peergroup using quantitative ESG measurements

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Thematic/Sustainable Investing

The terms thematic and sustainable investingare often used interchangeably across theinvestment industry. Nonetheless, thematicinvesting may have a broader definition forsome investment managers, in that a fundcan target themes related to macro

dynamics, technological disruption,demographic trends and so on. However, Inthe context of RI, this typically means targetingthemes primarily related to the UN SDGs:

Figure 10. UNPRI - The 17 UN Sustainable Development Goals

Source: UNPRI

The UNPRI has acted as a resource for bothinternally-developed and externally

developed tools and frameworks in mappingthe SDGs to real-world investment sectors.

Whether the manager has a thematicinvesting framework that is aligned to theUNPRI Impact Investing Market Map –this aligns a manager to the SDGoutcomes through theimpact/thematic/sustainable investingthemes pursued.Whether the manager has targetedthemes/sectors and if that is in alignmentwith their beliefs about responsibleinvesting and whether the manageractively targets the UN SDGs.

From an Evergreen Consultants perspective,in evaluating a manager’s capability inThematic/Sustainable Investing, we aretrying to understand the following:

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Figure 11. PRI Impact Investing Market Map

Source: UNPRI

What type of thresholds whetherrevenue-based or valuation-based areutilised in evaluating a company’sexposure to a particular Theme.

The impact investing market map(applicable as well to thematic/sustainableinvesting) has been a core Framework usedby investment managers in evaluating thesustainability outcomes of their investments .

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Impact Investing

Impact investments are investments madewith the intention to generate positive,measurable social and environmental impactalongside a financial return. Impactinvestments can be made in both emergingand developed markets and target a range ofreturns from below market to market rate,depending on investors' strategic goals.

The growing impact investment marketprovides capital to address the world’s mostpressing challenges in sectors such assustainable agriculture, renewable energy,conservation, microfinance, and affordableand accessible basic services includinghousing, healthcare, and education.

Source: The Global Impact Investing Network (GIIN)

The core characteristics of impact investing as defined by the GIIN are shown in the figure below.

Figure 12. The Global Impact Investing Network - Core Characteristics of Impact Investing

Source: The Global Impact Investing Network

Intentionality

Use Evidenceand Impact Data

in InvestmentDesign

Manage ImpactPerformance

Impact investing is marked by an intentional desire to contribute tomeasurable social or environmental benefit. Impact investors aim to solveproblems and address opportunities. This is at the heart of what differentiates impact investing from otherinvestment approaches which may ncorporate impact considerations.

Investments cannot be designed on hunches, and impact investing needs touse evidence and data where available to drive intelligent investment designthat will be useful in contributing to social and environmental benefits.

Impact investing comes with a specific intention and necessitates thatinvestments be managed towards that intention. This includes havingfeedback loops in place and communicating performance information tosupport others in the investment chain to manage towards impact.

Contribute to theGrowth of the

Industry

Investors with credible impact investing practices use shared industryterms, conventions, and indicators for describing their impact strategies,goals, and performance. They also share learnings where possible toenable others to learn from their experience on what contributes tosocial and environmental benefit.

This document has been prepared by Evergreen Fund Managers Pty Ltd, Trading as EvergreenConsultants, AFSL 486 275, ABN 75 602 703 202 and contains general advice only. It is intended for Adviser use only and is not to be distributed to retail clients without the consent ofEvergreen Consultants. Information contained within this commentary has been prepared as general adviceonly as it does not take into account any person’s investment objectives, financial situation or particularneeds. The commentary is not intended to represent or be a substitute for specific financial, taxation orinvestment advice and should not be relied upon as such. All assumptions and examples are based on current laws (as at February 2021) and the continuanceof these laws and Evergreen Consultants interpretation of them. Evergreen Consultants does not undertaketo notify its recipients of changes in the law or its interpretation. All examples are for illustration purposesonly and may not apply to your circumstances.

evergreenconsultants.com.au

info@evergreenconsultants.com.au

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