Our Commitment

ESG – Environmental, Social and Governance

ESG stands for Environmental, Social and Governance often as called sustainability. In a business context, sustainability is about the company’s business model, i.e. how its products and services contribute to sustainable development. It is also about a company’s risk management, i.e. how it manages its own operations to minimise negative impact. United Nations Principles of Responsible Investment (UNPRI) defines responsible investment as a strategy and practice to incorporate environmental, social and governance (ESG) factors in investment decisions and active ownership.

Kotak Mahindra Asset Management (KMAMC) takes into account the principles of Environmental, Social and Governance (ESG) factors and Responsible Investing (RI). These principles are an integral part of the investment process at KMAMC. Embedding these principles in our investment philosophy allows us to be a key influencer for long term sustainable shareholder returns. With KMAMC focus on long term investing, we combine multiple factors in addition to financial outlook to measure risk and opportunities of an investee company.

Kotak Mahindra Asset Management is a signatory to United Nations Principles of Responsible Investing (UNPRI) and is the first Indian asset management company to do so for its entire asset management business. Kotak Mahindra Asset Management is also a signatory to Climate Action 100+. This demonstrates our focus towards securing commitments from the corporate sector. The underlying sustainability agenda is that the Indian corporate sector, individually and collectively, take action to reduce greenhouse gas emissions consistent with the Paris Agreement’s goals.

Our ESG investment process and philosophy

Fundamental analysis is the bedrock of our investment decisions. Our investment philosophy of Business, Management and Valuation (BMV) focuses on sustainability of business and corporate governance. We also believe that ESG issues can influence investment risk and return. Therefore, we incorporate ESG considerations within our fundamental analysis and seek to gain an understanding of the relevant ESG issues applicable to our investments.

 

Our ESG investment process and philosophy

Fundamental analysis is the bedrock of our investment decisions. Our investment philosophy of Business, Management and Valuation (BMV) focuses on sustainability of business and corporate governance. We also believe that ESG issues can influence investment risk and return. Therefore, we incorporate ESG considerations within our fundamental analysis and seek to gain an understanding of the relevant ESG issues applicable to our investments.

Our ESG framework includes the following:

img

Articulation of the firm wide strategy and vision

img

Instituting governance and oversight framework

img

Integration of ESG factors into portfolio management and scenario analysis

img

Investment stewardship and engagement with investee companies

img

Reporting and disclosures

img

Putting in place the talent and infrastructure needed for ESG integration

Our approach to ESG: The 3 E strategy

Our approach to ESG is that of positive / best in class screening with a primary focus on engagement and evaluation. We also have ESG related exclusions which are mandate specific. ESG research and integration is an outcome of collaboration between portfolio managers and research analysts.We use the BMV model in our approach to investment. Within this model we seek to incorporate various ESG parameters including the ESG scores provided by the third party service providers in order to finally arrive at our investment decisions.

img

ESG Integration into the Investment Process

img


• Business, Management & Valuation
• Governance, Environmental Impact & Social Factors*
• Using 3rd party Research to evaluate companies on ESG


• Focused Questionnaire to potential and investee companies on various E, S & G parameters
• Meeting top management twice a year and discuss ESG issues
• Voting to promote ESG in the company



• Sectoral Exclusions like Tobacco, Gambling, Coal, controversial weapons
• Companies scoring poorly on ESG factors

Some of the key ESG factors which we consider in our investment decision are as follows:

Governance

  • Capital allocation policies
  • Shareholder structure
  • Board composition: Size and structure / tenure etc.
  • Independence of the Board
  • Executive remuneration

Environment

We are aware that climate change and transition to a low carbon economy would present risks and opportunities for investments. The impact of such transition would vary across sectors and industries and would occur over a period of time. Some of the key things we monitor include:

  • Carbon emission and its environmental impact
  • Energy consumption and focus on resource efficiency - Usage of alternate energy sources

Social Factors

  • Safety of employees
  • Employee retention policies / attrition levels

  • Participation of women in the work force / diversity

  • Presence of unionized staff

  • CSR (Corporate Social Responsibility) spends

  • Involvement in the production or development of cluster bombs, land mines or weapons for mass destruction like chemical or biological weapons


img

Engagement and voting

  • ·Engaging with companies on their ESG related policies: The investment team regularly interacts with all stakeholders of an investee company and endeavours to engage with the senior management of the companies on a regular basis and we send ESG focused questionnaire to key companies under coverage. We believe in the need to adopt a positive engagement approach whereby we engage with all our investee companies especially whenever we experience shortfalls on principles of ESG.

Third party research provider

We have entered into an Agreement with a third service party provider- For their inputs on various companies and their ESG score. The ESG research from the service providers also help us in engaging with companies on their ESG policies.
KMAMC has appointed a proxy advisor for voting advice. While we do engage proxy advisors, the decisions on voting for Board resolutions is taken by the Voting Committee.

The research team ensures engagement with corporates and research over and above what is provided by the service provider.

img

Exclusion (mandate specific)

Exclusions are based on the following Environmental and social factors

  • Environment – focus on fossil fuels
  • Social – Focus on Tobacco and gambling

  • Controversy – controversial weapons, weapons of mass destruction

For Kotak ESG Opportunities Fund: “Based on SEBI circular SEBI/HO/OW/IMD-II/DOF3/P/5249/2022 dated 8th February 2022, with effect from 1st October 2022, in respect to Kotak ESG Opportunities Fund, KMAMC shall only invest in securities which have Business Responsibility and Sustainability Report (BRSR) disclosures. The existing investments in Kotak ESG Opportunities Fund for which there are no BRSR disclosures would be grandfathered till 30th September 2023. In case of overseas investment, any global equivalent of the BRSR disclosures as specific by AMFI shall be considered”

Monitoring and over sight

We evaluate companies on ESG parameters not only on a current basis but also monitor the changes that these companies incorporate over time. Changing regulatory requirements will also guide our investment process, engagement and monitoring of our investee companies.

  • As active managers, we continuously monitor the companies in which we invest and their ESG scores.
  • The Investment Committee sets the guidelines for investments and helps formulates and approves policies including ESG related policies and these are periodically reviewed.

Due Diligence methodology and its limitations

The ESG scores assigned by the third party research provider is on the basis of only publicly available information and data. Further, any controversies relating to companies under coverage during the year are tracked and shared regularly by the service provider in order to determine their materiality and impact on the rating of the company, if any. Since the scores are based on publicly available information, they would depend on the public disclosures made by companies on their ESG practices.

ESG research team
  • Our Research team consists of analysts who are a combination of sector specialists and mid-market/ small-cap focussed. ESG is an integral part of the overall research methodology of the research analysts.
  • We have designated our Head of Equity Research as ESG coordinator for KMAMC.

  • Additionally, we have also strengthened the team with a dedicated ESG analyst.

Articles & Press Release

State of ESG in the Public Equity space in India

09/09/2021

Future Of Indias Electric Vehicle

01/04/2023
Signatory Of
sigImgone
sigImgone
© Kotak Mutual Fund.2024
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
© Kotak Mutual Fund.2024
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
© Kotak Mutual Fund.2024
Mutual fund investments are subject to market risks, read all scheme related documents carefully.