Asset Manager ESG Integration
Montanaro Asset Management have been a signatory to the UN Principles for Responsible Investment since 2009. Alongside this, the firm is also a signatory or supporter of several global initiatives, just some of the initiatives they are a part of include the UK Stewardship Code, the Carbon Disclosure Project the Tobacco Free Portfolios Finance Pledge, the Living Wage Accreditation, the Net Zero Asset Managers Initiative. At COP 26, it co-chaired the B Corp Finance & Investment Working Group and also contributed to the work of the GFANZ taskforce (Glasgow Financial Alliance for Net Zero), the latter aims to bring several frameworks together (such as SBTi, CDP, Climate Action 100+, TCFD, Transition Pathways Initiative) to help companies report better data.
In June 2019 the firm became a Certified B Corporation, indicating it has made a legally binding commitment, to show regard to all of its stakeholders (staff, customers, communities, the environment and overall governance), and report progress. As a firm, Montanaro has also set the target of being “net zero” by 2030, and indeed, since our last review, the firm's ambition has grown as it is now seeking to be carbon negative and to remove its historical carbon emissions by 2030. The group believes it can reduce its emissions in half from its base in 2019 to 2030, whilst they will be carbon negative by also using carbon offset programmes. The firm is seeking to publish a paper soon that will set out how it plans to achieve the target of carbon negative, which overall we think is an impressive undertaking.
ESG and sustainability considerations are at the heart of not only the investment process of all strategies at Montanaro, but also at the heart of the firm itself. Over the past few years, the firm has expanded its capabilities in this space through the appointment of Ed Heaven, as the Head of Sustainable Investment, and Kate Hewitt, as an ESG & Impact analyst. Mr Heaven joined Montanaro in 2014 and has been heavily involved in the further integration of ESG into the investment process culminating in the launch of the Montanaro Better World fund. Alongside this, he is also responsible for the firm's in-depth ESG handbook, which highlights all aspects of the group's efforts, including their large-scale engagement projects. The firm itself also has a Sustainability Committee, which provides oversight and guidance to ensure the firm's approach to ESG and its ESG framework remains consistent across the house, something we believe is wholly positive. Furthermore, the firm itself supports two charities, Tribal Survival, which was established by the firm's founder Charles Montanaro, a charity that aims to promote the wellbeing of indigenous people, and City Harvest London, which provides food to vulnerable people in London.
Montanaro is an active steward of clients' assets and will exercise ownership rights where it believes it is appropriate, including voting at all AGMs. As they mainly invest in small and mid-size companies, the investment team will generally look to engage with company management to improve or sustain an appropriate level of ESG standards instead of flat line voting against management. Despite being a relatively small firm, Montanaro have provided examples of how their engagement has been able to provide positive change.
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Fund ESG Integration
ESG factors are fully integrated and are instrumental to the management of this fund. It is clear that not only the managers of the fund, but the firm as a whole, consider ESG at every stage of the process, as they believe that a company's quality is directly aligned with its management and implementation of ESG factors, in terms of its ability to grow over the long term.
In essence, the team seeks to understand how ESG factors influence a company and how they could affect what they deem to be the quality of the company through in-depth analysis. Indeed, as detailed in the Responsible Investment Approach section, the respective sector analyst conducts ESG analysis as part of their fundamental research. Through this, there is both an exclusion of 'sin' areas and qualitative ESG analysis, including an ESG checklist, which is subjectively scored and uses data from third party providers.
>Furthermore, the respective analyst will also meet with a company's management on a regular basis, and look to conduct site visits, in order to gain a more in depth investment picture and will engage on any arising ESG issues, if deemed necessary. Engagement is carried out by the respective sector analyst who is often further supported by the Sustainability Committee. Even though this is part of the respective analyst's role, both the managers of the fund will frequently be involved in these meetings. The engagement process is in depth, extensive, well structured and outcome driven, and therefore, if the managers feel unhappy with a firm post engagement, they may, in some cases, disinvest.
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