Status under the EU Sustainable Finance Disclosure Regulation (SFDR)
Janus Henderson Horizon Global Smaller Companies Fund
Legal Entity Identifier: 213800I63HI1UKL7JT09
A. Summary
The Fund is categorised as one which meets the disclosure provisions set out in Article 8 of SFDR as a product which promotes environmental and/or social characteristics and invests in companies with good governance practices, but does not have as its objective sustainable investment.
The Fund promotes the following environmental and/or social characteristics:
- Avoidance of investments in certain activities with the potential to cause harm to human health and wellbeing by applying binding exclusions.
- Promotes climate change mitigation.
- Support for UNGC principles (which cover matters including human rights, labour, corruption and environmental pollution.
- avoiding issuers with a high carbon intensity, and which do not have a credible transition strategy based on the Investment Managers proprietary methodology or it meets the Investment Managers alternative criteria on engagement or ESG Rating.
The Fund does not use a reference benchmark to attain its environmental or social characteristic.
This Fund seeks capital growth through investment in small capitalisation equity markets. The binding elements of the investment strategy described below, that are implemented as screens are coded into the compliance module of the Investment Managers’ order management system utilising third-party data provider(s) on an ongoing basis. The exclusionary screens are implemented on both a pre and post trade basis enabling the investment Manager to block any proposed transactions in an excluded security and identify any changes to the status of holdings when third-party data is periodically updated.
Two of the binding elements criteria referenced below are not available as automated data points within the order management system, and are evidenced by external or in-house research:
- Engagements with issuers held with a UNGC Principles status of “fail”.
- Excluding issuers with a high carbon intensity, and which do not have a credible transition strategy.
Engagement plans are agreed and periodically reviewed for engagement activity including progress against the engagement plan during the 24 month period.
The Investment Manager will:-
- Apply screens to exclude direct investment in issuers based on their involvement in certain activities. Specifically, issuers are excluded if they:
- derive any revenue from the production, manufacture, management or storage fissile materials used in/for nuclear weapons
- derive more than 10% of their revenues from palm oil or tobacco
- Apply screens to exclude investment in issuers if they derive more than 10% of their revenues from oil sands extraction, arctic oil and gas, thermal coal extraction and power generation.
- Engage with issuers in breach of UNGC Principles and will only invest or continue to be invested if it considers through such engagement that they are on track to improve. If the issuer does not achieve a “pass” rating within 24 months, it will divest and screens will be applied to exclude the issuer.
- The Investment Manager may invest in issuers with a high carbon intensity (other than those excluded as described above) if it determines that such issuers have a credible transition strategy, based on its proprietary methodology described below, or it meets the Investment Managers alternative criteria on engagement or ESG Rating.
In accordance with the Investment Manager’s proprietary methodology, a company will only be considered as having a credible transition strategy if it has at least one of the following:
- A science-based emissions target or a verified commitment to adopt a science-based emissions target (approved or verified by SBT – https://sciencebasedtargets.org/ or equivalent); or
- In the specific case of the airlines sector, made significant aircraft fleet investment to reduce carbon output (that is to have a younger than average fleet age) or
- 30% of future gross capex and/or research and development to sustainability aligned projects, in accordance with the Investment Manager’s methodologies.
If a company does not currently have a credible transition strategy in place, the Investment Manager may still invest if:
- it believes that, through its engagement with the company, the company will adopt a science-based emissions target or carbon reduction goal*; or
- it demonstrates superior ESG risk management by achieving an ESG rating of AA or higher (rating from MSCI – https://www.msci.com/, or equivalent).”
*If the company does not achieve a “pass” rating within 24 months, it will divest and screens will be applied to exclude the issuer.
Additional criteria may also be applied in assessing the validity of the transition strategy.
The Fund also applies the Firmwide Exclusions Policy (see “Firmwide Exclusions” in the "JHI Responsible Investment Policy”), which includes controversial weapons.
For the purposes of the AMF doctrine, the extra-financial analysis or rating is higher than:
- 90% for equities issued by large capitalisation companies whose registered office is located in "developed" countries, debt securities and money market instruments with an investment grade credit rating, sovereign debt issued by developed countries.
- 75% for equities issued by large capitalisations whose registered office is located in "emerging" countries, equities issued by small and medium capitalisations, debt securities and money market instruments with a high yield credit rating and sovereign debt issued by "emerging" countries.
The Investment Manager may include positions in the Fund that, based on third-party data or screens, appear to fail the above criteria, where the Investment Manager believes that the third- party data may be insufficient or inaccurate.
The Investment Manager may consider that the data is insufficient or inaccurate if, for example, the third-party data provider research is historic, vague, based on out of date sources, or the investment manager has other information to make them doubt the accuracy of the research.
If the Investment Manager wishes to challenge the third-party data, then the challenge is presented to a cross-functional ESG Oversight Committee who must sign off on the “override” of the third-party data. If a third party data provider does not provide research on a specific issuer or excluded activity, the Investment Manager may invest if, through its own research, it is satisfied that the issuer is not involved in the excluded activity.
JHI has chosen MSCI’s as its primary data source for ESG (Environmental, Social and Governance) research. Where coverage gaps are identified, specialist ESG Data vendors or inhouse research may be used to complement the ESG research. This ensures helps ensure that consistent data and methodologies are used given an ESG measure per security type and hence can be compared correctly in the portfolio construction process.
The JHI Responsible Investment Policy, which incorporates JHI’s Sustainability Risk Policy, sets out the firmwide approach to ESG Integration Principles, including JHI’s Responsible Investment Principles for long-term investment success, our approaches to Stewardship and Engagement and Baseline Exclusions applied to investee companies.