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Ethics and Behaviours
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Investment philosophy
Ngā Whanonga
Ethics and Behaviours
The investment process which underpins TAHITO
is effectively measuring ‘Aroha Connection’. We
are measuring the transition of companies from
the ‘substantive’, internally focused, very
self-absorbed behaviours, to the ideal ‘Relational’,
externally connected, collective behaviours. This
requires ethically strong and committed
governance with a clear drive toward sustainability
to enhance financial returns.

Māori ethics put people and the environment first
because both are fundamental to living and
thriving. This thinking is implicit in the ancestral
Māori worldview which centres on connection and
the interdependence of all things.

 

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Investment philosophy
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Investment philosophy
Te Ngātahi o TAHITO me ESG
What is ESG (Environmental, Social and Governance?)

ESG processes and procedures focus on
non-financial performance indicators that address
a company’s approach towards responsible
investment, sustainability, its impact on society and
the environment, as well as other ethical and
corporate governance considerations. ESG criteria
are a set of standards and measures of a
company’s operations that conscientious investors
use to screen potential investments.

 

Environmental criteria look at how a company
performs as a steward of nature.

Social criteria examine how a company manages
relationships with its employees, suppliers,
customers and the communities where it operates.

 

Governance deals with a company’s ethics, values,
leadership, executive pay, audits, internal controls
and shareholder rights.

 

Essentially ESG measures indicate the level of risk
exposure companies have relative to the key ESG
criteria.

 

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Ethics and Behaviours
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Investment philosophy
Ngātahi o ESG
ESG Integration

To understand how ESG information improves
investor returns, ethics and sustainability
expectations, we focus on three 'channels'
published by the MSCI ESG research team.

 

These channels are called; the cash-flow channel,
the idiosyncratic risk channel and the valuation
channel. These three channels are based on the
following rationales:

 

Cash-flow channel: High ESG-rated
companies are more competitive and can
generate abnormal returns, leading to higher
profitability and dividend payments.

Idiosyncratic risk channel: High ESG-rated
companies are better at managing
company-specific business and operational risks
and therefore have a lower probability of suffering
incidents that can impact their share price.
Consequently, their stock prices display lower
idiosyncratic tail risks.

 

Valuation channel: High ESG-rated companies
tend to have lower exposure to systematic risk
factors. Therefore, their expected cost of capital is
lower, leading to higher valuations in a DCF model
framework.

 

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Investment philosophy
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Investment philosophy
Te Iho o ESG
ESG Core Principles

ESG investing is a very broad field, with many
different investment approaches addressing
various investment objectives. At the top level, we
can break down ESG investing into three main
areas that each have their own investment
objective:

 

Values-based investing: where the investor seeks
to align their portfolio with their norms and beliefs.

ESG integration: where the key objective is to
improve the risk-return characteristics of
a portfolio.

 

Impact investing: where investors want to use
their capital to trigger change for social or
environmental purposes, for example, to
accelerate the decarbonization of the economy.

 

Values-based investing is the primary investment
objective for TAHITO ESG integration.

 

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Ethics and Behaviours
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Investment philosophy
Te Rī Motuhake
Positive Screening

ESG measures primarily indicate the level of risk
exposure relative to key ESG criteria, therefore
ESG measures alone do not indicate that a
company has attained sustainable, ethical and or
impactful standards. This is achieved through our
TAHITO ESG integration process.

 

We use ethical screens in selecting investments,
for which Māori indigenous values, principles and
behaviours serve as the foundation.

 

The TAHITO process uses mostly positive screens
and its measures are both quantitative and
qualitative.

The quantitative TAHITO scores (T Score) are
obtained using research from the MSCI ESG
system. The qualitative T Score (or Mauri screens)
are obtained by direct research. Securities are
ranked by their total T Score.

 

Māori ethics put people and the environment first
because both are fundamental to living and
thriving. This thinking is implicit in the ancestral
Māori worldview which centres on connection and
the interdependence of all things.

 

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Investment philosophy
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Investment philosophy
Te Whakauka
Sustainability

Sustainability measurement is the quantitative
basis for the informed management of
sustainability. The metrics used for the
measurement of sustainability (involving the
sustainability of environmental, social and
economic domains) are still evolving: they include
indicators, benchmarks, audits, indexes and
accounting, as well as assessment, appraisal and
other reporting systems.

 

The UN Sustainable Development Goals (SDGs)
are the blueprint to achieve a better and more
sustainable future for all. They address the global
challenges we face, including those related to
poverty, inequality, climate change, environmental
degradation, peace and justice.

 

The 17 Goals are all interconnected, with a target
achievement goal of 2030.
(https://www.un.org/sustainabledevelopment/susta
inable-development-goals/)

 

Corporate sustainability reporting is growing
quickly. Some of the best known and most widely
used sustainability reporting and measures
include:

  • Triple Bottom Line accounting
  • Global Green Economy Index (GGEI)
  • Environmental Sustainability Index
  • Environmental Performance Index
  • International Integrated Reporting Council
    (IIRC)
  • Global Reporting Initiatives (GRI)
  • Fit for Future
  • B Corp
  • Circular Economy

 

TAHITO favours a holistic socio-ecological,
balanced environmental system. This is driven by
our values and consistent with the holistic Māori
world view. Therefore, we would suggest that the
Inclusive Development Index (IDI) as defined and
measured by the World Economic Forum (WEF) is
a better measure of a country’s sustainability than
GDP.

 

The TAHITO system favours companies that:

  • Adopt credible sustainability reporting
    systems
  • Understand and measure their
    ‘externalities’
  • Are transparent with and accountable for
    their non-financial measures
  • Set clear and achievable sustainability
    targets
  • Demonstrate how they intend to reduce or
    better these measures
  • Have incorporated or are moving toward
    circular economy principles

 

 

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Ethics and Behaviours
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Investment philosophy
Te Kawekawe
Impact

Impact investing is considered alongside the
higher convictions of sustainable and ethical
investing as opposed to the more easily attainable
responsible investing. The International Finance
Corporation (IFC) defines impact investing as
‘investments made with specific intent to make a
measurable contribution to the achievement of
social and environmental goals, as well as
achieving a financial return’.

 

A key feature of this definition is that impact
investments are defined by the approach of the
investor. In principle, investments may be made
into the full range of public and private assets, as
long as by doing so the investor contributes to
achieving impact. Specifically, the definition
encompasses three observable attributes of
impact investors that can distinguish them from
other investors.

 

Intent: The investor articulates an intent to achieve
a social or environmental goal by identifying
outcomes that will be pursued through the

investment and specifies who will benefit from
these outcomes.

 

Contribution: The investor follows a credible
narrative, or thesis, which describes how the
investment contributes to achievement of the
intended goal—that is, how the actions of the
impact investor will help achieve the goal. In this
case, contribution is considered at the level of the
impact investor and can take financial or
non-financial forms.

 

Measurement: The investor has a system of
measurement in place, linking intent and
contribution to the improvement in social and
environmental outcomes delivered by the
enterprise into which the investment has been
made. The measurement system enables the
investor to assess the level of expected impact in
order to continuously monitor progress and take
corrective actions when appropriate, and to
evaluate the achievement of impact.

 

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How does TAHITO work?
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Investment philosophy
Impact investment
Intent, Contribution and Measurement

In our philosophy we state that Māori ethics put
people and the environment first and that this
thinking is derived from our ancestral world view
where everything is interconnected, and nothing
exists of itself.

 

  • Its ethics strive for balance and consensuality
  • Its behaviour is complementary and
    co-operational
  • Its target is reciprocity and harmony

 

The TAHITO process identifies companies with
the following impact intentions:

  • Intend to lower their GHG emission and set
    reduction targets and/or zero carbon targets
  • Aim to lower their energy and water use, waste
    levels and toxicity waste
  • Plan to reduce the use of energy from fossil
    fuels and transition to clean energy sources
  • Are aware of their biodiversity and aim to
    reduce their impact on their ecosystem
  • Strive for equality and equity in the workplace,
    governance and management
  • Aim to have a positive impact on the
    communities they are in

 

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What is TAHITO?
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Investment philosophy
Ngā Tātari
Business and Activity Screening
Concurrent with our TAHITO indigenous ethical screens we also screen for undesirable business activities.

 

They are:

  • Alcohol producers and retailers
  • Gambling
  • Tobacco
  • Cluster Bombs
  • Landmines
  • Weapons Production
  • Firearms
  • Animal Welfare
  • Nuclear Power
  • Global Sanctions
  • Fossil Fuels
Most of these undesirable business activities are excluded during our TAHITO screening as they will generally have a low overall T score.

 

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TAHITO and PRI
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Investment philosophy
Tahito
TAHITO and PRI

TAHITO adheres to the United Nations-backed
Principles for Responsible Investing (PRI). We
support and apply these six principles as set out
by PRI.

 

  • Incorporate ESG issues into our investment
    analysis and decision-making processes
  • Be active owners and incorporate ESG
    issues into our ownership policies and
    practices
  • Seek appropriate disclosure on ESG issues
    by the entities in which we invest
  • Promote acceptance and implementation of
    the Principles within the investment industry
  • Work together to enhance our effectiveness
    in implementing the Principles
  • Report on our activities and progress
    towards implementing the Principles

 

TAHITO has incorporated PRI into our funds
management systems and process and our
business processes and practices.

Engagement

TAHITO is an active portfolio manager. When we
consider there to be significant issues or conflicts
with respect to a company’s strategic direction,
values, remuneration, or other material matters,
TAHITO will engage with senior management, and
directors, and where possible other investors, to
find an acceptable outcome. If issues are
significant or are not resolved in a reasonable
timeframe TAHITO will divest of its interest.

 

TAHITO may divest an investment quickly without
engagement if the issue is extreme and has been
verified directly by reliable authorities or sources.

 

Company annual and extraordinary meetings
along with investor reporting forums provide an
opportunity for engagement and allow us to ask
ESG and TAHITO values and ethics-related
questions.

Proxy Voting

TAHITO will vote on behalf of fund investors. We
will vote all material resolutions at both annual
meetings and extraordinary meetings. The voting
will be directed by our values and ethics. TAHITO
applies an internal validation process for proxy
voting via our internal compliance manager and

 

senior analysts. All voting is recorded and
reported to the TAHITO Investment Committee.

 

A record of all voting is available to clients on
request. We are also open to consultation with
clients, prior to voting on any significant high
profile and contentious issues.

Ethical, Sustainable, Impact Investment
Development and Promotion

TAHITO team members regularly attend seminars,
conference and workshops relating to sustainable,
ethical, impact and/or responsible investing.
Occasionally a TAHITO member may have a
presenter or panellist role at these events.

 

TAHITO promotes ethical, sustainable and impact
investing within the ISG group of companies
among key stakeholders and where practicable
among the community.

Reporting

TAHITO communicates our ethical, sustainable,
impact investment activities and proxy voting to
client investors quarterly via our fund commentary.

 

Information on these activities is also provided to
client investors and other stakeholders on request.