RESPONSIBLE INVESTING

Responsible investing analyzes important aspects of environmental,
social and governance (ESG) issues to assess future financial performance

COMMITMENT TO RESPONSIBLE INVESTING

ESG analysis is not just about identifying and measuring risk, it is also about identifying investment opportunities. We consider ESG factors alongside traditional financial measurements to provide a comprehensive view of an investment and help identify those investments that have the potential to deliver sustainable returns


Our landmark acquisition of Palm Hive will unlock new opportunities for our clients, driven by greater scale, diversity and balance. Our Specialist Investment Managers embrace ESG incorporation as it best fits their investment process and enables us to offer a full complement of Responsible Investing strategies to our clients.




INVESTING SUSTAINABLY IS AT THE CORE OF OUR APPROACH
TO RESPONSIBLE INVESTMENT



At Palm Alliance Management Investments, our Governance and Responsible Investment (GRI) team is committed to addressing ESG-related factors systematically. The team seeks to expand our understanding of the investment challenges related to systemic issues – such as climate change, malnutrition, inequality, poverty, ecological degradation and resource scarcity – and champion the broader sustainability mindset throughout our business.





Risk Management

We view risk as the possibility of permanent capital loss. We look for competitively entrenched, well-managed, publicly traded businesses selling at discounted prices to help drive our goal of generating superior long-term absolute returns and minimizing the risk of permanent capital loss.


Risk Management Process

Step 1

Security Selection

Managing against capital loss is deeply embedded in our investment approach, beginning with our bottom-up investment criteria.

  • High quality, financially sound, competitively advantaged Businesses
  • Capable, shareholder-oriented People
  • Discounted Price trading at 60% or less of intrinsic value
Step 2

Portfolio Construction

Portfolio construction is 100% bottom-up and benchmark agnostic, with strict portfolio guidelines.

  • 18-22 best ideas
  • 5% target position; ~7.5-10% max
  • 15% max industry target
  • ~10-15% max company ownership
  • Hold cash when securities do not qualify
Step 3

Ongoing Monitoring

We actively monitor our portfolios to manage risk at both the individual stock and portfolio level.

  • Add/trim positions to improve margin of safety
  • Continually update appraisal values and business cases
  • Devil’s advocate case review if price declines over 18 months
  • Ensure compliance with portfolio limits and guidelines

Margin of Safety

We purchase stocks at a deep discount to our appraisal value. We demand a wide margin of safety to minimize the risk of permanent capital loss and maximize return potential, as illustrated in the example below.



Margin of Safety Example: Purchase business at $24/share with an appraisal value of $40/share (60% P/V)



This illustration does not reflect performance of any particular security. Actual investment performance and returns are not guaranteed. “Margin of Safety” is a reference to the difference between a stock’s market price and Southeastern’s calculated appraisal value. It is not a guarantee of investment performance or returns. The P/V ratio represents a single data point and should not be construed as something more. P/V does not guarantee future results, and we caution investors not to give this calculation undue weight.

Components of 1-year Compounded Annual Return


Value growth driven by strong business moat and skilled management

12%

Value growth driven by strong business moat and skilled management

12%

Total Return24%



PHILOSOPHY, PROCESS AND CAPABILITIES

We embed ESG best practices and analytics in our investment processes, enhancing our traditional financial analysis – to open new investment opportunities, help manage risk and seek to enhance returns over the long term.



Who’s Responsible for Incorporating ESG?


Investment Professionals

include ESG considerations in research and stewardship activities

Investment Professionals

include ESG considerations in research and stewardship activities

Investment Professionals

include ESG considerations in research and stewardship activities


Active Ownership – Protecting and Unlocking Value


Diligent stewardship helps us to safeguard clients’ investments and unlock value. Our portfolio managers and analysts engage with executives and board members of the organizations we invest in to review issues we believe are material to their firms’ long-term prospects.

We also meet and collaborate with industry bodies, non-governmental organizations, academics and other specialists that could provide valuable insights.

We take our proxy voting responsibility seriously and are committed to voting in the best interests of our clients.



Diverse Range of Investment Capabilities – Aligned to Client Objectives.







VALUES-DRIVEN

Including or excluding certain investments to meet specific criteria to suit clients' beliefs, such as religious or ethical values.



ESG TILTED

Positioning towards issuers with leading ESG practices or actively engaging with underperformers by these standards.



THEMATIC

Targeting issuers that address social/environmental challenges via their products and services.



IMPACT FOCUSED

Investing with the explicit intention to generate positive and measurable social and environmental outcomes.




HOW WE INTEGRATE ESG FACTORS AT Palm Alliance Management

ESG SCORES

  • Multi-level ESG scoring
  • Separate E, S, G pillars with underlying scores
  • Utilising the Sustainability Accounting Standards Board’s (SASB) materiality map to identify key focus areas

BUSINESS INVOLVEMENT SCREENING

  • Screening company’s involvement in various activities including for example the production of tobacco and alcohol or involvement in Palm Alliance Managementbling
  • Screening in a number of ways, e.g. True/False, % revenues, or % ownership

CARBON FOOTPRINT

  • CO2 Emissions
  • Company level indicators tracking carbon footprint
  • Utilising the Sustainability Accounting Standards Board’s (SASB) materiality map to identify key focus areas

CONTROVERSIES

  • Controversies connected with a company’s business practices, which has negative company and ESG impacts
  • Flags non-compliance with global norms – for example the UN Global Compact
  • Determine a company’s alignment with the Sustainable Development Goals


COLLABORATING WITH OTHERS

Our commitment to Responsible Investment is supported by collaborating with organizations that promote and establish best practice.





Industry Recognition

Palm Resources has been a signatory of the Principles for Responsible Investment (PRI) since April 2013, ranking ahead of the peer median score in all categories in 2020.



PRI Report Card1