Warakirri adopts tier-based ESG investment framework

Warakirri Asset Management has introduced a tier-based ESG classification framework for the Warakirri Ethical Australian Equities Fund and the Warakirri Concentrated Australian Equities Funds.

While Warakirri is the responsible entity for these funds, Northcape Capital acts as the investment manager.

Under the framework, companies will be classified in three tiers: tier one would be approved for investment, tier two would be approved with enhanced monitoring and tier three would not be approved for investment.

"The tier classification reflects an assessment of ESG-related financial risk and is not a judgement on the overall sustainability or ethical standing of a company," Warakirri said.

"Only tier one and tier two companies are eligible for inclusion in the approved list. Companies assessed as having severe, persistent and inadequately managed ESG risks, which may pose unacceptable long-term investment risk, are excluded."

For the funds, Northcape ESG data model utilises raw data sourced from reputable data providers and incorporates approximately 100 indicators across governance, climate, human rights, human capital and customer considerations.

For the Warakirri Global Emerging Markets Fund, in assessing companies for investment, Northcape considers analyst and third-party research, judgement and insights.

"ESG ratings ultimately reflect analyst judgement of the materiality of ESG risks in the context of the Northcape investment process. This is expressed through an ESG score out of 10 comprising: Environmental (three points), Social (three points) and Governance (four points)," Warakirri said.

For the Warakirri Ethical Australian Equities Fund, Northcape applies a negative screen which excludes investment in companies with revenue greater than 5% in the following: manufacture of alcoholic beverages; provision of gambling products and/or services; production of sugary drinks, confectionery and fast-food chains; and extraction of thermal coal and/or coal seam gas.

A revenue threshold of 0% is applied to companies involved in: production of tobacco, manufacture of nicotine alternatives and tobacco-based products; and manufacture of controversial weapons, firearms, and nuclear weapons, as well as associated delivery systems.