Catella began a journey in 2009 to integrate sustainability into our investment process by becoming a signatory to the UN Principles for Responsible Investment, committing ourselves to addressing environmental, social and governance issues in our decision making, and to promoting greater transparency and openness on these issues.
This work has intensified over the past two years, both within each fund and at an overall level. Catella Sverige Aktiv Hållbarhet is our sustainability flagship. The fund actively seeks out companies that incorporate sustainability into their business concept, while deselecting companies that we consider make a negative contribution to global challenges. In our other funds we have also clarified and improved the processes surrounding sustainability, and it is now the turn of Catella Hedgefond. In order to make the fund sustainable, we have chosen to exclude the sectors that we consider harmful to health or the environment, such as tobacco, alcohol and commercial gambling. We entirely avoid investments in weapons and pornography. When it comes to fossil fuels, we have completely ruled out companies involved in coal production. In addition, we make tougher demands for sustainability when it comes to companies in manufacturing and services before making an investment.
In order to assure our limits and restrictions, we use an external partner - Systainalytics, an independent evaluator. Their analysis adds to our own company research to enhance our efforts. Systainalytics evaluates companies' sustainability efforts and monitors current controversies and problems that companies have in relation to international norms and conventions. This becomes an input in our management process as we review the companies ourselves.
Is it possible to make money on companies that conduct unsustainable business? Because we are able to short sell in Catella Hedgefond we can also make money when things go badly for these stocks. This might apply, for example, to companies whose risks are not properly priced by the market. So, the answer is yes, we can make money on unsustainable companies through short selling if our portfolio managers choose to do so.
The exclusion applies to all companies in the excluded industries, both stocks and bonds, which is not particularly common practice.
For oil producers we have set a higher threshold for sustainability work within the companies. We look particularly closely at companies in this category that receive low ratings from Systainalytics. If the low rating is due to something the company can fix itself, we choose to start a dialogue and keep the company in the portfolio. We want our engagement to contribute to improving their sustainability efforts.
There is still plenty left that we can do at Catella when it comes to sustainability. Putting our hedge fund on the sustainability map is an incredibly important step in this work!