Aurora Investment Trust | ESG

The appointment of Phoenix Asset Management Partners (PAMP) as Aurora’s investment manager came into effect in January 2016.

Research is the cornerstone of the PAMP active investment strategies. Where relevant, the analysis of material ESG factors in order to understand their impact on investments is an important part of the stock valuation and selection process. Although it is often not possible to quantify the ESG impacts on valuations, we recognise that certain ESG indicators are key indicators of management effectiveness. As a result, analysis of relevant ESG factors potentially can highlight:

• The extent to which there is an effective and empowered board
• That there are effective checks and balances to ensure management systems capture business risks and opportunities
• Levels of transparency and accountability
• The extent to which there may be litigation risks
• Unusually high staff turnover
• Early warning signals of malfeasance or corruption
• Whether governance structures are aligned with delivering long term shareholder value

Consideration of ESG issues is integrated into our investment decision-making process. We use an extremely detailed and rigorous proprietary system for evaluating investments. We refer to it internally as D.R.E.A.M, which stands for Dynamic Relative Evaluation and Assessment Model.

We strive for excellence in investment management. A key factor when selecting a company in which to invest is our judgement regarding the integrity of the investee company’s management and the corporation in general. An entire section of our proprietary evaluation model (referred to above) is dedicated to the issue of integrity. We value companies whose culture naturally encourages adherence to a strong ESG policy and principles, and our philosophy is to be supportive of management in their development of this culture.

At all times we observe and comply with the regulatory environments in which we operate. There are specific regulatory and statutory requirements that apply to our business, such as the UK Stewardship Code.  The UK Stewardship Code is a set of principles issued by the Financial Reporting Council (“FRC”) which aim to enhance the engagement between institutional investors and companies to help improve long-term returns to shareholders and to promote the efficient exercise of governance responsibilities.

We are aware of our fiduciary responsibilities to make considered use of voting rights. We have a clear policy on voting and on disclosure of voting.  Our policy is to participate in all ballots with respect to the companies in which we are invested, and to vote all shares held.  All voting is instructed by ourselves to the various custodians who hold the assets of our Fund and segregated accounts. Our overriding concern is always to optimise the long-term value the funds and the collective investments that we manage.

We do not actively report on voting activity, however, we encourage a culture of transparency and engagement with investors and as such, we are transparent in our responses to any queries relating to voting activity.

Our Conflict of Interest Policy details how we deal with conflicts, or potential conflicts. We are aware that the industry in which we operate provides many areas where conflict may arise. We strive to identify and avoid potential conflicts, and, in those instances where conflict cannot be avoided, we seek to manage and mitigate them to the best of our abilities.

Our default approach to investing is to select excellent companies run by competent and aligned management. If we get this right, we can then afford to be largely passive. However, there may be scenarios where active engagement is more appropriate. For example, if management begin making decisions that are not in the best long-term interests of shareholders. In our experience this is rare, although when it happens, we will behave as owners of the businesses and act in the interests of long-term shareholder value. When engaging with companies our purpose is to either seek additional understanding or, occasionally, to seek change that will protect and enhance the value of investments for which we are responsible. We concentrate on each company’s ability to create sustainable value. We monitor our investee companies very closely and where we have access to management (by virtue of the size of our shareholding), we have regular dialogue with senior members of the investee company’s Board.

We conduct in-depth research into a potential investee company’s management, and we continue this level of monitoring throughout the duration of our investment. As part of this process, we monitor executive remuneration and have a preference for schemes that encourage long-term share ownership based on shareholder value and return on capital, rather than structures that reward management on an annual basis, based on PE and share price, which we think can incentivise the wrong sort of behaviour.