ESG disclosure

Disclosure of climate-related risks

Climate-related risk is assessed to be relevant and material to the Funds managed by Gavekal Capital Limited (“the Firm”).

  1. Governance

The Board is responsible for the Firm’s overall strategy and oversight of climate-related risks and opportunities. Its mandate includes:

i.            setting corporate and strategic objectives and approving the framework and policies;

ii.           setting clear roles and responsibilities of the Board and senior management;

iii.          overseeing the incorporation and implementation of climate-related considerations into the investment and risk management processes and progresses against goals for addressing climate-related issues; and

iv.          ensuring that senior management have adequate understanding of climate-related risks, and is equipped with appropriate expertise to manage climate-related risk, as needed.

The Board reviews the Firm’s climate management approach on an annual basis and are kept up to date on the progress of implementation. The Chief Compliance Officer leads the implementation and delivery of climate change strategies and reports progress to the Board.

In addition, the risk management team evaluates the risks of all investments, including sustainability risks, for portfolio managers’ periodic review. Any material climate-related risk exposures and exceptions to the Firm’s policies identified during investment management and risk management process will be escalated to the senior management. 

  1. Strategy

The Firm integrates environmental, social, and governance (ESG) factors (inclusive of climate-related risks and opportunities) in the research process from an impact and risk perspective. When it comes to evaluating climate change risk/opportunities into our investment theses, we rely on a combination of fundamental analysis (by analysts and portfolio managers) and thematic research (by the ESG specialist).  The Firm’s ESG specialist works with portfolio managers and analysts to identify and analyse the impact of climate-related risks and opportunities on an investee company’s business and financial projections and incorporate these analyses into its investment strategies. It also makes use of ESG scores and ratings from a third-party provider as a primary source for generating sustainability-related insights of the investments it makes on behalf of the Funds it manages.  Where reasonably practicable, the team may obtain access to and utilise raw data on key environment-related performance indicators from the companies in which it invests, such as GHG emissions, waste production and energy consumption levels. Material climate-related risk factors will be subject to a periodic review.

For fixed income products, the Firm uses impact investing in the investment process. It also applies a set of exclusion criteria to limit ESG risks, divest in coal activities, avoid financing the tobacco and weapons industries and entities which violate the United Nation Global Compact.

  1. Risk management

On an ongoing basis, where material, the Firm assesses the potential and actual impact of climate-related risks on an individual investment-level and on a portfolio-level and documents its rationale and analysis. Assessments and analysis are made using relevant internal and external materials including news, public data, and data providers.  The Firm also has policies to ensure compliance of ESG exclusion policies.

Where there are developments that could materially affect the operations and financials of a portfolio company or portfolio companies in a particular industry sector, the Firm will reassess the risk and return profile of the investment or the portfolio.

The Firm also has in place protocols to determine whether to continue with the investment, to adjust the composition of an investment portfolio, or to incorporate other mitigating measures to manage the climate-related risk exposure in the portfolios managed. Where material climate-related risk exposures or exceptions are identified in the periodic assessment performed, portfolio managers will escalate such matters with the appropriate steps to be taken per the Firm’s policies to the Board.  The Board shall review the escalation and approve the proposed actions on a timely basis. The Firms also reviews regularly the effectiveness of their risk management system to ensure that any potentially significant deterioration in climate-related risks is followed up promptly.

On a regular basis, the Firm performs scenario analysis and identify portfolio carbon footprints of Scope 1 and Scope 2 greenhouse gas (GHG) emissions associated with the Funds’ portfolio investments.