1- The incorporation of the ESG factors into the research process

ESG factors are central to ASEF’s investment process. This is primarily due to the fund’s long-term investment horizon
requiring it to adequately account for ESG risks, which could take a long time to materialise. ASEF conducts its ESG research internally as it is considered an integral part of the due diligence.

The research process aims to identify company specific ESG considerations, which are factored into the valuation for each investment. The process relies on quantitative and qualitative data, focusing on materiality and relevance for each company.

The analysis encompasses potential effects on the income statement, such as changes in laws, taxes, or greening legislation, as well as potential liabilities reflected on the balance sheet, such as potential environmental hazard, or corrupt practices. Stringent on-site due diligence is conducted, and investments are avoided if material risks are uncovered.

The discount rate also captures the impact of specific risks on a company’s cost of capital, whereby a premium would be required to compensate for the specific additional ESG risk(s).

2- Active ownership and engagement

ASEF is a responsible active investor seeking to play a key role in encouraging and advocating best ESG practice. The fund’s investment companies are consistently monitored and regularly provided with transparent feedback. Companies are benchmarked against (1) their own history, (2) peers in the industry, and (3) global best practices.

Subsequent engagement with management can take three forms:

• Light engagement, consisting of sharing information and views with the company
  
• Moderate engagement, aiming to formally raise concerns with the management and/or the Board of Directors
  
• Heavy engagement, which is a more assertive approach including shareholder activism