Environmental, Social & Governance

ESG PHILOSOPHY

At Terra Capital, we believe that it is incumbent upon us to respond to the environmental and social challenges facing the world and that, as investors, very exciting opportunities will emerge as the global economy responds to these challenges. As a specialist global natural resources and green metals fund manager, sustainable investment in this critically important sector is the cornerstone of energy transition and to future worldwide economic growth.

We believe that as an equity investor the onus is on us to be active owners in companies that we can engage with, encourage and create a better world through the allocation of our capital.

ESG AND OUR INVESTMENT PROCESS

We believe that effective ESG-conscious investing in the global strategic natural resources sector will be a key determinant of performance for our strategies. We know that there is a high correlation between those companies who do well at ESG metrics with the management of risks associated with the remainder of their company’s operations. This may include financial, management and operations aspects of a company.

Fully incorporating ESG considerations in our investment process will therefore significantly contribute to delivering risk-adjusted returns, and our strategies promote environmental and social characteristics and invests in companies that apply good corporate governance.

Active investors in the global resources sector can materially influence the behaviour of companies in making responsible decisions with regard to ESG matters. In particular, we believe that global strategic resources companies have a central role to play in making the transition to a low carbon economy, both in terms of more sustainable means of energy generation, reducing emissions and other environmental impacts from their own operations and in delivering the raw materials which will be required to deploy cleaner technologies.


Our investment process integrates ESG factors in the following factors:


1. Integration in our fundamental company models: Our bottom up, proprietary GEMS (Governance, Environment, Momentum, Social) scoring system;

•  We integrate our proprietary GEMS ESG integration model. This model integrates a quantitative scoring model to over 95 factors of ESG including (but not exclusive to) diversity, environmental factors, safety, first nations relations and remuneration. The ‘M’ in our GEMS model stands for ‘momentum’. We add a momentum score to our ESG model to support those companies who show strong engagement, intent and cultural integration in their companies.

2. An active ownership model through company engagement & proxy voting;

• We believe in active ownership and stewardship of our capital. Given the sector in which we are specialists, we believe that active engagement with companies will support the sectors to be stronger corporate citizens, better environmental stewards and show a higher bar in governance of their assets and business.

• We will vote on all resolutions at company AGMs. It is our goal to rarely to abstain any vote where appropriate. Please see our Voting Policy for more information.

3. Exclusions/negative screens; and

• We believe investment and strong engagement is more effective than divestment of companies in our specialist sector, and, as such, at Terra Capital we assess ESG factors on a bottom-up fundamental perspective.

• The Terra Capital Natural Resources Fund applies our proprietary GEMS framework. Exclusions may be made based on our GEMS assessment of each company.

• The Terra Capital Green Metals Fund specifically excludes fossil fuel related companies from our investment universe to provide investors a pure play sustainable metals exposure.

Critical Minerals: Essential metals for the generation, transmission and storage of clean energy

4. Portfolio management
• Each company’s GEMS profile is assessed and taken into consideration as part of the portfolio construction process. This means that where two companies have similar financial metrics, however one has a better GEMS score than the other, then we will always choose the stock with the better sustainability score.
• A preference will also be given to investments which, whilst not directly classified as sustainable investments, are operated with sustainable objectives (such as the substitution of clean energy generation for hydrocarbon-derived energy generation) as a priority.

INVESTMENT PORTFOLIO DIFFERENCES

Terra Capital Natural Resources Fund

The Natural Resources Fund takes ESG factors into account when assessing a company amongst other qualitative and quantitative attributes. This fund does not specifically have a sustainable objective.

This fund employs the team proprietary GEMS sustainability framework as part of its bottom-up fundamental research. Each analyst is responsible for the ESG assessment of the companies in which they are researching.

The Terra Capital Natural Resources Fund will exclude:
– Companies that receive revenue from the production of tobacco or tobacco based products;
– The development of or production of weapons;
– Gambling;
– Pornography;


Terra Capital Green Metals Fund

The Green Metals Fund specifically has a sustainable objective as part of its investment process as it screens out fossil fuel companies. This strategy excludes any company found to be engaged in or associated with:
– coal, oil and gas;
– child or slave labour;
– manufacture and production of tobacco;
– gambling and pornography; and
– the development of or production of weapons.

The Green Metals Fund also employs the team’s proprietary GEMS sustainability framework as part of its bottom-up fundamental research in each company model and research process.


Additional weighting within the portfolio will be given to investments which have sustainable characteristics, such as: renewable energy generation; mining and processing of the minerals required to enable the transition of the global economy to a more sustainable basis; sustainable food production; and carbon capture / sequestration.


Preference will also be given to investments which, whilst not directly classified as sustainable investments, are operated with sustainable objectives (such as the substitution of clean energy generation for hydrocarbon-derived energy generation) as a priority.

IMPLEMENTATION

The portfolio managers and analysts are responsible for the implementation of the investment process, including research, screening, engagement and qualitative factors of each company and the application of this ESG Policy.
Terra Capital’s approach to ESG considerations is to incorporate screening processes in both:

1. Top-down analysis of our potential investment universe and commodity selection;
This is undertaken though a high-level risk factor analysis i.e country/region of operation, likelihood of modern slavery either in the commodity or country etc. The team’s top-down assessment will screen out companies based on high risk factor analysis.

2. Bottom-up fundamental ESG analysis of individual companies

The team has developed their own proprietary bottom up ESG assessment process called ‘GEMS’.

  • Environmental
    The environmental assessment covers mining production, energy consumption (scope 1-3), GHG emissions, water stewardship, chemicals and waste management, and an assessment on tailings.

  • Social
    The social assessment includes workforce training and development, diversity and inclusion, community development, human rights, complaints and absence, health and safety and indigenous relations.

  • Governance
    An assessment of governance includes board structure, board and executive remuneration, stakeholder governance and assessment of shareholder rights and structure.

  • Momentum
    The momentum attribute is allocated to a company based on their engagement levels and willingness to listen and support change to occur in their sustainability metrics. We believe that this is an important indicator to our overall assessment of ESG factors.

    Each company’s specific assessment attributes may differ based on their individual circumstances.
    The GEMS assessment is incorporated via a pass/fail assessment into each company model.

    ESG attributes are considered at each stage of the investment process from stock research to portfolio construction.

    All companies within our portfolio are subject to ongoing monitoring.

    The Team also has an automatic sell discipline based on negative environmental factors. Should there be any detrimental or perceived detrimental environmental factor for a company we hold, the team will automatically sell a holding.

ENGAGEMENT AND ADVOCACY

The incorporation of ESG considerations into the investment process applies across all Terra Capital investments. Once invested, Terra Capital regularly review and monitor the ESG performance of its investee companies through meetings with management and their reporting. The results provide valuable information and allow us to assess ESG opportunities and risks, and to assist and support our investee companies in attaining their ESG goals.

ESG AND ENGAGEMENT POLICY

We believe in active ownership and stewardship of our capital. Given the sector in which we are specialists, we believe that active engagement with companies will support the sectors to be stronger corporate citizens, better environmental stewards and show a higher bar in governance of their assets and business.

We will vote on all resolutions at company AGMs. It is our goal to rarely to abstain any vote where appropriate.