Catella Fondförvaltning AB (”Catella”) acts exclusively in the joint interest of its clients. The objective of the management is that our clients' wealth should perform as well as possible.
1 Background and Aim
This document presents how Catella Fondförvaltning AB (“Catella Fonder”) exercises shareholder influence including the voting rights linked to investments made within the context of the company’s business.
Our mandate to responsibly manage unitholders’ money includes daily monitoring of the performance of the funds’ investments. When performance does not meet our expectations, the first step is normally to initiate dialogue with management. If the portfolio company does not address the issues that have arisen in a satisfactory manner, the responsible manager must balance the opportunities to achieve change through continued dialogue against selling the ho,lding in question.
The overall goal of shareholder engagement at Catella Fonder is at ensuring that the funds generate the highest returns possible considering each funds' risk profile. Consideration of matters related to the environment, social responsibility and governance (ESG factors) is an integrated part of our investment process. Integrating ESG factors enhances the quality of our investment process and is consistent with maximising value for unitholders. In addition to maximising value for unitholders and championing sustainability, Catella Fonder must act to instil and preserve high public trust in the portfolio companies and the financial market.
As a long-term owner, Catella Fonder influences companies in mainly three ways.
- Engaging in dialogue with representatives of the portfolio company.
- Voting at general meetings.
- Nomination committee work when Catella Fonder is a major shareholder, provided that this does not limit Catella Fonder’s freedom to act to an unreasonable extent.
Our opportunities to exert shareholder influence are proportional to the size of our ownership and the ownership structure of the portfolio company otherwise. That said, we do not lack the opportunity to act to achieve a result that benefits our unitholders when we are a minor shareholder or have indirect influence via, for example, fixed income investments.
2 Active ownership
2.1 Corporate dialogue
The managers regularly meet with existing and potential Nordic portfolio companies. At these meetings, they engage in dialogue concerning the companies’ overall strategy, financial performance, capital structure and the company’s performance and strategy concerning sustainability. Dialogue topics include the risks and opportunities associated with the business. The environmental and social impact of the portfolio companies, matters related to corporate governance and related issues are also discussed at these meetings.
The managers base these dialogues on internal and external analyses of the companies’ overall strategy, financial performance and internal and external sustainability analys. In dialogues relating to environmental, social and governance topics, the managers are supported, in addition to the internal analysis, by external service providers that examine the relevant portfolio companies based on sustainability aspects. Corporate dialogue is an important part of the investment process and also contributes to new investment ideas. In cases where Catella Fonder is both a shareholder and a lender, the fund managers consult before the company dialogue and any advocacy work.
Dialogue is conducted with organizers on behalf of the issuer (banks, brokers, etc.) regarding the addition of ESG criteria in the prospectus for interest-bearing securities and corporate loans.
From a risk perspective, portfolio companies that have heightened risks in the sustainability area are prioritised in these dialogues. Fund managers draw attention to shortcomings in sustainability work and promote improvements in portfolio companies that have received low sustainability scores. Our selected external providers of sustainability data evaluate corporate sustainability programmes and monitor current controversies and problems. The chief sustainability officer should be an expected discussion partner for the managers when they are gathering information about portfolio companies related to sustainability.
The responsible fund managers implement, document and follow up the dialogues.
2.2 General meetings
Catella Fonder's participation in general meetings is guided by the materiality principle: we participate in general meetings of portfolio companies of material importance to the performance of our funds. Catella Fonder may also participate in general meetings at which decisions are made that can be expected to have major impact on the portfolio company's business, even if our stake is small but opportunities exist for shareholder cooperation. As well, Catella Fonder normally participates in general meetings of companies where we have been involved in nomination committee work and/or are a major shareholder. Catella Fonder considers itself a "major shareholder" if the funds own 5 percent or more of equity and/or voting rights in a portfolio company.
Catella Fonder may, if deemed appropriate, issue a proxy to a third party to represent Catella Fonder at a general meeting. The proxy is always combined with instructions on how the proxy should vote at the meeting. The proxy/instructions shall be preceded by the same preparatory work as if Catella Fonder itself, through an employee, were to be represented at the meeting. Thereby being ensured that votes are cast in accordance with our policy.
When shares in the portfolio company are out on loan, the loan is always recalled over the general meeting and there are no further loans made until after the general meeting. This is done regardless of whether or not Catella Fonder has provided a power of attorney to third party.
The fund manager is ultimately responsible for monitoring corporate actions and for ensuring that the fund votes at general meetings in accordance with the investment objectives and policy. However, Catella Fonder, however, strives on the basis that all funds must have a consensus on important issues relating to the portfolio company's operations; this includes so that we can exercise ownership influence more effectively. To this end, Catella Fonder has appointed an ownership representative who, in consultation with fund managers, decides how the fund shall vote at general meetings. The CEO is the company's ownership representative.
Catella Fonder does not normally use voting advisers.
18.104.22.168 Boards of directors of portfolio companies
Our fundamental position is that the boards of directors of portfolio companies are appointed at the mandate of shareholders and that all board issues must be managed from the perspectives of existing shareholders. We also believe that directors should own shares in the company. The boards of directors of portfolio companies should otherwise meet the criteria set forth in the Swedish Corporate Governance Code.
22.214.171.124 Incentive programmes
It is the responsibility of the boards of directors of portfolio companies to ensure that the incentive structure is optimised from the long-term ownership perspective and that the interests of management coincide with those of shareholders. Participation in incentive programmes should entail a certain degree of financial risk. Accordingly, entirely subsidised programmes are not normally appropriate. Assessment of reasonable programme costs and dilution is made on the basis of conditions in the industry in which the portfolio company is active. The boards of directors of portfolio companies should also inform and gain the support of major shareholders for proposed incentive programmes well in advance of general meetings.
126.96.36.199 Takeover bid situations
The boards of directors of portfolio companies must act from the perspective of existing shareholders throughout the process and ensure that the bidder does not make any commitments to management or the board of directors before the bid has been accepted. The principle of fair treatment should also apply in companies with various share classes where the bid premium should be the same for all share classes.
2.3 Nomination committees
When Catella Fonder is among the major shareholders in a company, we should, where applicable, exercise shareholder influence by having representatives on the nomination committees of portfolio companies, provided that the holding is long-term and deemed capable of creating added value for unitholders. Nomination committee tasks include evaluating the current board of directors, nominating candidates for chairman of the board and other directors and proposing fees to directors, the chairman, committee members and committee chairs. The nomination committee also proposes the election of the auditor and auditor’s fees.
When participating on nomination committees, Catella Fonder works actively to promote a competent, experienced, multifaceted and gender-equal board of directors. Decision is made by the owner responsible to make representatives available to the nomination committee or board of directors of a portfolio company.
2.4 Cooperation and taking positions on ownership issues
Catella Fonder should act in concert with companies within the Catella Group, Athanase Group or other external shareholders and/or relevant stakeholders on individual matters that are in the interests of unitholders. We are active members of the Swedish Investment Fund Association, where we are a member of the working group for ownership and sustainability. In this context, we pursue matters jointly with other industry representatives related to transparency, regulation and reporting. We are also active members in Swesif, where we primarily participate in projects related to Swesif’s activities and training events.
Catella Fonder has signed the UN Principles of Responsible Investment (PRI). This is the foundation of our sustainability work, in which we integrate sustainability topics in company analysis, act as active owners and promote transparency and scrutiny of the portfolio companies in which we invest.
2.5 Managing conflicts of interest and insider information
There are companies or funds within the Catella Group ("Catella") and Athanase Group ("Athanase") that invest on their own account. Operations within Catella Fonder are clearly segregated from these other companies and Catella Fonder must exclusively consider unitholders when exercising its voting rights, regardless of any interests Catella or Athanase may have in the portfolio company concerned. In exceptional cases, employees' own holdings of financial instruments may also give rise to conflicts of interest. When Catella Fonder exercises its voting rights, an assessment is made in every case as to whether any conflict of interest may arise for the fund or unitholders and, if so, how such conflicts should be managed. Generally, the ratio means that each fund manager is responsible for ensuring that a fund votes in accordance with the fund's investment policy and in the best interests of unitholders, conflicts of interest are managed. If this circumstances is not in itself sufficient to deal with the conflict of interest, Catella Fonder always applies additional procedures and measures, including requirements for obtaining approval from the Compliance Officer.
Catella Fonder's mandate in connection with the management of investment funds and alternative investment funds is to act exclusively in the joint interests of unitholders. Accordingly, Catella Fonder shall as far as possible avoid restrictions to fund management. Catella Fonder therefore avoids, to the greatest possible extent, accessing information that affects prices and which is not generally known or is non-public (insider information), or accessing information bordering on insider information - grey zones, referred to generally as "insider situations". Despite this, Catella will from time to time find itself in insider situations. Policies are in place to manage these situations, including that the group of individuals informed about the insider situation must be kept as limited as possible and that Catella Fonder shall take action to prevent employees from using the information for personal gain or in the company's operations.
3 Sustainability policy
Catella Fonder shall act to promote sustainability in a manner that meets the expectations of our clients and our positions. Consideration of matters related to the environment, social responsibility and governance (ESG factors) is an integrated part of our investment process. Integrating ESG factors enhances the quality of our investment process and is consistent with maximising value for unitholders.
3.1 Our view on sustainability
We strongly believe that sustainability analysis must be integrated with financial analysis to be value-creating in the truest sense. This work is ongoing as a natural and integrated aspect of the traditional fund manager role, where we estimate the portfolio company’s potential for future growth and profitability. By adding an assessment of the extent to which sustainability strengthens or weakens the portfolio company’s circumstances, we increase our understanding and thus the reliability of our forecasts. Accordingly, we consider sustainability a source for finding investments. Catella Fonder is also working to bring about greater transparency and increased ESG reporting in the portfolio companies in which we invest.
We believe greater focus on sustainability is contributing to the value performance of the funds by improving our capacity to avoid risks and take advantage of opportunities. All portfolio companies have exposure to sustainability risks in some form and to varying extents. The degree of risk and its potential impact on the financial statements is affected by the portfolio company’s sector, where it does business and its ownership structure. Portfolio companies operating in controversial industries are excluded. External analysis firms’ assessments of the individual portfolio company’s sustainability work is used and the score/rating is included as an aspect of our investment process. The score/rating is also the basis for the shareholder dialogues on sustainability that we engage in with portfolio companies. As owners, we maintain a continuous dialogue with the portfolio companies' managements and their main stakeholders and stay up to date on regulations that may affect the portfolio companies.
Catella Balanced and the ICA funds (funds-of-funds) manages with a focus on funds where the underlying companies have sustainable business models according to the criteria and the analysis described below.
3.2 Positive selection criteria - What we screen in for directinvesting funds
Generally speaking, we look for portfolio companies/issuers that are both inspired by sustainability and can demonstrate attractive financial qualities, a clear or sustainable business model and a clear profit and return trend or repayment capacity that is underestimated by the market. For our equity funds we use the UN 2030 Agenda for Sustainable Development as a basis for identifying business models that can benefit structurally by offering a solution to one or more of the 17 Agenda 2030 Goals. We have identified four themes that we believe are potential sources of structural growth and profitability for portfolio companies exposed to these themes. Last but not least, we study the extent to which the financial statements of portfolio companies are affected by sustainability. We enhance our understanding of the long-term potential of the business model by integrating sustainability with financial analysis. We also try to apply the above four themes in fixed income management.
3.2.1 We opt for the funds-of-funds
These Funds generally seek for index and index-close funds with a clear sustainability profile and actively managed funds where the underlying companies have a sustainable business model and are engaged in a clear sustainability work, which also could show attractive financial qualities, a clear business model and a clear profit and return trend, which is underestimated of the market.
The base of the Funds investment philosophy and process is that there is a connection between a sustainable business model and a sustainability in profitability and growth. Innovative solutions to today's global challenges, we believe, will be some of tomorrow's winners. We can transform that into value creation in our funds. Accordingly, the Funds seek long-term good returns by actively including the sustainability criterion in the investment and selection process in order to find both index funds which meets our requirements and actively managed funds investing in companies whose long-term profitability and competitiveness are underestimated by the market.
3.3 Negative selection criteria - What we screen out
The Company’s funds exclude portfolio companies that produce or distribute goods and services associated with harmful effects on human health and the environment or that are addictive as detailed below. With regard to absolute return products, however, we may take short positions in these portfolio companies if we believe the market has not fully priced in the risks. This is consistent with our view that sustainable business creates value and competitive advantage over time.
|International norms and conventions|
|UN Global Compact|
|Controversial products and services||Production*||Distribution*|
|Chemical and biological weapons||0%||0%|
|Oil, gas & coal||5%||5%|
* of the company’s turnover
3.3.1 Controversial products
We avoid portfolio companies that produce tobacco, alcohol, gambling, pornography, weapons, coal and oil, as these products are associated with harmful effects on human health, are strongly addictive, or are associated with serious environmental impacts. We also exclude portfolio companies that distribute the controversial product or service. We have chosen not to consider third-party ownership because a financial investment is not categorised as production or distribution of the controversial product or service.
3.3.2 Norm screening
The Company’s funds exclude portfolio companies that breach the 10 principles and 42 conventions of the UN Global Compact. Sustainalytics performs the assessment of whether the portfolio company is violating norms. Read more about the UN Global Compact at www.unglobalcompact.org/what-is-gc/mission/principles.
For Catella Sverige Hållbart Beta we apply the same exclusion strategy as to our other equity funds, but do not work with screening in portfolio companies because the fund must track its benchmark index to the greatest possible extent.
For interest-bearing holdings and corporate loans where the issuer is not covered by Sustainalytics, no screening and thus no exclusion takes place other than through our own control.
4 Reporting, monitoring and escalating
We report our shareholder engagement and work with sustainability in each fund’s prospectus and in this policy, where we explain methods, deliberations and positions. The work is reported annually at the fund level in conjunction with the funds’ annual reports. In these reports, we report the number of dialogues with portfolio companies and explain the exclusions and inclusions made based on reasons of sustainability. We also report the impact our work has had on returns and portfolio company ratings or changes to which we believe we have contributed. In addition, the reports cover our positions on specific and material ownership issues, our participation on nomination committees, the general meetings at which we have voted, how we voted and our reasons.
As a member of PRI, an annual report is made of our sustainability work, which can be found on our website.
If a portfolio company with which we have initiated a dialogue does not show evidence of change or willingness to change, we escalate our engagement. We can do this in several ways. Pressure can be brought to bear more effectively in collaboration with other shareholders or other stakeholders of the portfolio company. We may also choose to use the general meeting as a forum for escalating our opinions. As a last resort, we will sell the holding when and if the portfolio company’s stance leads to higher risk for negative financial impact. The escalation method is chosen following assessment of the individual case, while safeguarding the best interests of unitholders. If the portfolio company is found in breach of international norms and conventions, we sell the holding as quickly as possible, while safeguarding the best interests of unitholders.
The Risk Function at Catella Fonder is responsible for monitoring compliance with this policy in the context of fund management. The Compliance Function ensures that documentation of Catella Fonder’s work with sustainability and ownership is assured and monitored.
5 Regulations that govern this policy
According to the Investment Funds Act, the Alternative Investment Fund Managers Act and Art. 37 of the EU Commission Delegated Regulation, the board of directors of a fund management company shall establish a policy on shareholder engagement concerning the assets of the funds it manages that are admitted to trading on a regulated market and were issued by undertakings in the EEA. Fund management companies and alternative investment fund managers must, according to Finansinspektion’s regulations (FFFS 2013:9 and 2013:10) establish internal rules stating the strategies for deciding when and how voting rights linked to the financial instruments included in each fund should be used.
According to the EU Commission's delegated regulation, the Disclosure Regulation, fund companies / AIFMs must inform their investors and clients about ESG factors, and according to the Taxonomy Regulation with rules to determine when an economic activity is to be considered environmentally sustainable.
Please direct any questions concerning Catella Fonder's ownership policy to the company's CEO.