1. Introduction and Business Principles
This policy sets out a summary of Chikara Investments LLP (“Chikara” or the “Firm”)’s commitment and approach to integrating Environmental, Social and Governance (“ESG”) factors into the investment process as well as across the culture and operations of the firm. A full policy is available on request.
2. ESG Oversight and Responsibilities
Chikara’s ESG culture has been developed by its senior management and the partnership, who maintain oversight and accountability of Chikara’s approach to ESG. Chikara has established an ESG Committee whose members consist of senior individuals representing a range of business areas. In addition, members of the investment team and other Chikara staff are invited to participate at ESG Committee meetings on an ad hoc basis, for example to discuss ESG issues that arise in the investment process.
The ESG Committee is responsible for general oversight of ESG at Chikara, and for Chikara’s ESG strategy (in conjunction with the Partners).
3. ESG Integration Approach
This ESG Policy covers the approach to responsible investing for all assets under management of Chikara.
Chikara has a structured yet flexible approach to incorporating ESG into the investment process. Using ESG screening, integration and stewardship techniques, the investment team seeks to consider how ESG risks and opportunities may have a financial impact on investment opportunities.
This aligns with the overall investment objective of the funds that Chikara manages as well as our objective to maximise returns for clients. In addition, considering ESG factors helps Chikara to develop a deeper understanding of sustainability issues and potentially reduces detrimental sustainability outcomes.
3.1 Negative Exclusion List (Screening)
In addition to observing legally required exclusions, Chikara avoids investments in companies that manufacture controversial weapons such as biological and chemical weapons, cluster bombs, anti-personnel mines or nuclear weapons. The exclusion list is implemented as a pre-trade compliance check which prevents trades in excluded names.
3.2 ESG Research Process
Environmental, Social and Governance factors are integrated into the firm’s bottom-up investment process and these issues are considered alongside financial and strategic issues during assessment and engagement with companies. ESG risks are qualitative factors rather than quantitative inputs on a financial model.
The investment team conducts its own research which is complemented by data and research of third parties. Chikara has engaged a third party ESG and climate data provider, who provides ESG related metrics and analysis. These reports are reviewed by the investment team where available and assist them in identifying potential areas for engagement with companies as it relates to ESG factors. Third party reporting includes Corporate ESG assessments, Climate Impact Reporting, Norms Based Research, and EU Regulatory Reporting.
A key component to our ESG process is engagement with companies (more details below). Engagement serves three main purposes for us as it relates to ESG integration: due diligence, education and action.
3.3 Climate-Related Risks and Opportunities
We recognise there can be potential financial impacts of climate-related risks and opportunities to our investments. We think about climate-related risks and opportunities in line with TCFD categories and definitions. By way of oversight of climate-related risks and opportunities across our investments, on a quarterly basis, the ESG Committee accesses third party climate impact reports for each fund to monitor the climate risks. Any material findings are highlighted to the investment team.
Stewardship is typically implemented through tools including engagement and proxy voting. The ESG Committee is responsible for oversight of stewardship activities and acts as a point of escalation if necessary. Chikara’s commitments to the Japan Stewardship Code and UK Stewardship Code are set out here: https://www.chikarainvestments.com/legal-disclosures
Chikara’s investment philosophy emphasises fundamental, proprietary research, to identify potential companies, supported, where possible, by direct company meetings conducted by the dedicated and experienced Asian and Japanese teams at Chikara. As well as review and assessment of third party research and engagement with country and industry experts, members of the investment team engage in one-on-one meetings and telephone calls with senior management or Investor Relations representatives of companies.
The Portfolio Manager is responsible for engagement on ESG matters and monitoring is carried out via investment reviews. Our research incorporates company-specific data and analysis as well as information from third party research providers (as detailed in the prior section).
We also have a propriety system which allows us to record and track engagements and assists us in reporting this activity to our clients. In the event that a company does not respond to engagement, or fails to act on the points raised, the investment team considers whether to reduce exposure or exit the position.
Aside from engagement with portfolio companies, Chikara contributes, when appropriate, to relevant and important industry consultations and we discuss wider market issues in industry media.
We generally engage with companies on an individual basis but subject to any regulatory considerations/constraints, once an investment is made, Chikara may participate in collective engagement with other institutional investors over material matters which could have a material impact on shareholder value, when required.
3.4.2 Proxy Voting
The primary voting policy of Chikara is to protect or enhance the economic value of its investments on behalf of its clients. Chikara will vote against any agenda that threatens this position, in particular concerns over inappropriate incentives, changes in capital structure and mergers or acquisitions which are seen as detrimental to the creation of business value.
Chikara aims to vote all shares where it has its clients’ authority to do so, assuming there are no conflicts of interest. All voting decisions are made in consultation with, and approval by, the portfolio managers. Once the proxy votes are submitted, they are recorded by Chikara. Proxy voting records are available at www.chikarainvestments.com/voting-summary.
We provide a high level of transparency to investors and produce a monthly factsheet containing information covering our top positions, an extensive exposure summary, and commentary on what has worked and what has not, as well as future strategy. Full disclosure of the portfolio is available on a monthly basis to investors.
In addition, we provide:
- Proxy Voting Reporting
- Stewardship Reporting
- PRI Reporting
5. Memberships of Industry Bodies
Chikara believes that participation in industry bodies demonstrates our commitment to responsible investing, helps us to be active owners, promotes appropriate ESG disclosures and helps us to learn and enhance our effectiveness in ESG. To this end, Chikara is affiliated with the following organisations:
- Principles for Responsible Investment (PRI)
- Association of Investment Companies (AIC)
- Alternative Investment Management Association (AIMA)
- TCFD Support
- Commitment to Paris Agreement
6. Chikara Firm ESG Procedures
In addition to the ESG approach deployed within the investment process, Chikara believes it is important to operate its own business in line with good ESG practices. As such, Chikara has implemented a range of business initiatives across the three pillars of Environmental, Social and Governance. The ESG Committee is responsible for ESG initiatives at the management company level and is constantly seeking to improve and enhance Chikara’s own ESG culture.
7. ESG Training
The ESG landscape is constantly evolving, and Chikara is keen to ensure that all staff are educated and aware of ESG developments across the investment universe. To that end, employees receive regular training and regularly collaboratively engage on a wide range of issues, including ESG, sustainability, climate change and the importance of stewardship and their integration into the investment decision-making process.
8. Policy Review
The ESG Policy is reviewed at least annually. The last review of the ESG Policy was completed in July 2023.