Adelio Partners ESG policy

As signatories of the UNPRI we are committed to incorporating Environmental, Social and Governance (ESG) issues in our investment process, our ownership policies, and our reporting. We aim further the United Nations’ Sustainable Development Goals by building and managing a portfolio that has a better aggregate ESG footprint than that of its benchmark index.  Additionally, our experience is that including ESG factors in the evaluation of investment candidates improves decision-making and leads to better outcomes.

Our investment process is designed to produce a long-only portfolio of 35-40 listed European equities with the following characteristics:

  • Sufficient liquidity in each stock to meet our stringent requirements – only c. 1,000 of the 14,000 listed names in our universe are eligible.

  • A risk profile for each stock that falls within our acceptable limits – we turn away candidates we view as too dangerous, based on our proprietary scorecard including default risk, ESG risks, management quality, accounting reliability, and other factors.

  • Return expectations for each stock that are among the best we can find in our universe when adjusted for risk. That is, we select stocks that show the most potential upside per unit of risk.

  • For the whole portfolio, sufficient factor diversification, and aggregate metrics that beat those of our benchmark: risk score, expected return, ESG score.

To implement this process, we have built a technology platform (“AQUA”) which collects and standardizes data from various providers, automates valuation calculations and risk analysis using market estimates along with our own inputs, and supports our analysts’ work.

AQUA collects industry and company ESG data from external providers as well as direct measures collected by us. These scores feed into our risk scorecard for every stock, with a 20% weight. The relative weights of industry score and company score vary, depending on the type of industry: a “good” company score carries more weight in a “bad” industry than in a “good” industry for instance.

Based on the above mentioned screening, target companies are allocated to one of three following groups:

‒ The first group are companies on our exclusion list, with names that we deem to have the worst ESG footprints and no reasonable hope of improvement even through strong shareholder engagement, such as controversial weapons and tobacco products. These securities are excluded from investment;

‒ The second group are securities issued by companies with a low ESG rating: we may invest in these securities, but cannot exceed their weight in the benchmark, and we must engage actively with the issuer to improve the ESG rating; and

‒ The third group are all other securities, which are freely investable but where we will continue to engage for continuous ESG improvement.

We track our portfolio’s aggregate ESG score and aim to keep it above that of our benchmark index.