Position on harmful and controversial products and services
Thresholds
For those products and services that generate revenue for a company, a materiality threshold has been set for direct involvement in the relevant activities of 5% of revenue (unless otherwise stated in the table below, e.g. production of tobacco has 0% materiality threshold).
For harmful and controversial practices like supply chain or employee issues, revenue thresholds are not possible; therefore, judgement and knowledge of the company are required in order to determine whether a company is materially exposed to such practices.
Monitoring
The portfolio manager employs the services of external environmental, social and corporate governance (ESG) research providers who review our portfolios and provide regular reporting on company involvement in harmful industries and breaches of social norms, like those found in the UN Global Compact. They also receive regular updates from controversy monitoring service RepRisk. These reports are reviewed by the investment team.
Exceptions and transparency
Where they become aware of a material exposure to harmful or controversial products, services or practices prior to a new investment in a company or as part of its ongoing monitoring, they will:
- engage with the company where we require further information or wish to encourage improved practices and an appropriate resolution of the issues identified; and
- review the company research and investment case, noting the company’s response where we believe it is adequate.
If, following this review and engagement, they determine that an exception to this Position Statement would not be inconsistent with the assessment that the relevant company contributes to, and benefits from, sustainable development, they may decide to invest in or maintain the holding in the company. In such circumstances, they will disclose this on the website, together with the reasons for the decision.
They may make an exception to this Position Statement in the following circumstances:
- if a company is winding down a legacy commercial activity (in which case the company will be engaged and encouraged to cease the activity concerned); or
- where the company is not increasing capital expenditure in relation to, or if a company is only indirectly exposed to, harmful or controversial products, services or practices; for example, a company making safety products for a wide range of industries may also have customers in the fossil fuel or defence industries.
Where engagement has been unsuccessful or where the harmful activities are part of a pattern of behaviour that raises concerns regarding the quality and integrity of the company’s management, the portfolio manager will not invest or will exit the Funds’ position in the company in an orderly manner having regard to the best interest of investors.
They will not make any exceptions in relation to positions on the manufacture of Controversial Weapons (as defined below) or the production of Tobacco Products (as defined below).
Issue |
Our approach |
| Environmental issues | |
|---|---|
| Fossil Fuels | We will not invest in companies that have a material exposure to the exploration, production or generation of fossil fuel energy. We define in scope fossil fuels as thermal coal, unconventional oil & gas (arctic drilling, oil sands, shale energy), and conventional oil & gas. The Funds consider exploration, extraction, power generation, transportation, distribution, refining or providing dedicated equipment or services as part of the value chain. |
| Nuclear power | We do not invest in companies materially involved in nuclear energy. |
| Environmental stewardship (see Further Information below) | We will not invest in companies that we reasonably believe wilfully or persistently neglect their environmental obligations, including their obligations under applicable laws, and the principles outlined in the UN Global Compact and other standards and independent assessments that we adopt from time to time. No materiality threshold applies to this item. |
| Social | |
| Alcohol (production) | We do not invest in companies materially involved in the production of alcohol products. |
| Tobacco (production) | We do not invest in companies involved in the production of Tobacco Products (this includes any company that owns a 50% or more interest in companies that any revenue directly from the manufacture of Tobacco Products (defined below)). This activity has 0% of revenue threshold. However, for wholesaling, distribution and provision of dedicated equipment and services to companies that produce Tobacco Products, we apply a 5% revenue threshold. We define Tobacco Products to mean traditional cigarettes and other tobacco products, such as cigars, chewing tobacco, vaping and e-cigarette products. |
| Gambling (retail involvement and services) |
We do not invest in companies materially involved in gambling operations or the provision of gambling opportunities. |
| Pornography (production and sales) |
We do not invest in companies involved in the production of pornography or materially involved in the distribution of pornography. Production of pornography has a 0% revenue threshold and distribution of pornography has a 5% revenue threshold. |
| Animal welfare (agriculture) | We do not invest in companies that are materially involved in:
|
| Animal testing (cosmetics, chemicals, household products etc.) |
We do not invest in companies that are involved in animal testing during the production of some consumer, medical, chemical and home and personal care products other than in the following circumstances:
|
| Sexual and reproductive health and rights | We will not invest in companies that discriminate against or seek to impinge on abortion rights for women. No materiality threshold applies to this item. |
| Genetic research and stem cells | We will not invest in companies that are involved in research for the reproductive cloning of human beings or animals. No materiality threshold applies to this item. |
| Human rights | We do not invest in companies with poor records in relation to globally accepted human rights norms and standards, including modern slavery, child labour, capital punishment, indigenous rights and community impacts. No materiality threshold applies to this item. |
| Ethical employment practices including discrimination | We do not invest in companies where we have formed a view that they undertake unethical or discriminatory employment practices. In forming a view on this, indicators such as employee compensation, gender equity and diversity, employee turnover rates and safety records can be particularly insightful when evaluating people-related risks. No materiality threshold applies to this item. |
| Armaments (weapons, strategic and non-strategic products) | We do not invest in companies that are materially involved in the manufacture of armaments. This includes both Controversial Weapons and other armaments such as handguns. A 0% revenue threshold applies to Controversial Weapons (this includes any company that owns a 50% or more interest in companies that derive any revenue directly from the manufacture of such weapons). Controversial Weapons mean anti-personnel mines, cluster weapons, biological and chemical weapons, depleted uranium, nuclear weapons and white phosphorus munitions. |
| Governance | |
| Oppressive regimes (companies who have dealings with oppressive regimes) | We do not invest in companies where we have formed the view that they may be compromised as a result of their dealing with such governments we consider to be oppressive regimes. No materiality threshold applies to this item. |
| Bribery and corruption | We do not invest in companies where we have formed the view that there appears to be cultural or systemic weaknesses that we believe can lead to bribery and corruption being perpetrated. No materiality threshold applies to this item. |
| Tax | We do not invest in companies where we have formed the view that tax practices are persistently and systematically designed to undermine the integrity of tax systems. No materiality threshold applies to this item. |
| Ethical conduct (customers, employees, suppliers and competitors) | We will not invest in companies where we have formed the view that the company abuses its relationships with its customers, suppliers and competitors, as we believe that such companies are equally likely to treat minority shareholders poorly, as well as carry with them significant risks of regulatory and consumer responses or compromising the sustainability of their supply chains. No materiality threshold applies to this item. |
Risk factors
Capital at risk. The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
Material exposure disclosures
For instances of companies held across the Pacific Assets Trust portfolio that generate revenue above our set materiality threshold for direct involvement in a relevant activity as outlined in this Position Statement see below.
Tencent
UN Global Compact Principle 2 (Breach): Businesses should make sure that they are not complicit in human rights abuses
Reason for exception/holding: Tencent presents an ongoing flag of non-compliance from our vendor for Principle 2 of the UN Global Company (human rights). This is also reflected periodically in controversy screening. This relates to data privacy and the accusation of widespread censorship and surveillance of Tencent’s platform users. We have been aware of this issue since 2022, and we have prioritised ongoing engagement with various people at Tencent as we continue to hold the company. From IRs to the ESG team, we have been impressed by Tencent’s willingness to engage on this, despite the sensitive nature of the topic.
We can see that there is a clear and broadening gap between western investors/rating agencies’ expectations and the reality of operating in China. Tencent is aware of the reports and, with the requisite sensitivity, have reassured us of their policies and standards. They only share what is necessary for law enforcement which aligns with their global peers (west included) and have a dedicated team for assessing such requests. There is now a local law that is comparable to Europe’s General Data Protection Regulations (GDPR) called Personal Information Protection Law. It was introduced in late 2021 and gives Chinese users rights to access, correct and delete their data. It applies to both the state and enterprises. Tencent set up a Management Taskforce on this issue which is led by the CEO, President and Heads of the six business groups, which we see as a positive step.
Tencent also express frustration at the lack of engagement from ratings agencies. This year MSCI have upgraded their rating, but Sustainalytics retain their non-compliance flag and Tencent have struggled to have a conversation with anyone there despite their attempts. Tencent joined the UNGC in 2023.
This is an issue we will continue to monitor and engage on but given that Tencent are fully compliant with local regulations and have robust gate-keeping mechanisms for all requests for information, they are in line with their peers globally.
Triveni Turbines
Activity exposure >5% revenue: Supporting Nuclear Power
Reason for exception/holding: Triveni Turbines designs and manufactures steam turbines, with a focus on renewable, efficient industrial heat and power solutions.
Revenues derived from products and services supporting nuclear power accounted for an estimated 5% of the company’s overall revenue in FY2023, according to our external research provider.
Nuclear power exposure for supporting products and services was added by our external research provider in early 2024 and we contacted the company directly to check the 5% revenue estimate provided. Given the company’s nuclear power exposure is related to servicing old steam turbines within the industry, the company estimates around 1% of revenue to be a more accurate reflection of its exposure.
Selling restrictions
Not all First Sentier Investors products are available in all jurisdictions. This material is neither directed at nor intended to be accessed by persons resident in, or citizens of any country, or types or categories of individual where to allow such access would be unlawful or where it would require any registration, filing, application for any licence or approval or other steps to be taken by First Sentier Investors in order to comply with local laws or regulatory requirements in such country.
Risk factors
This web page is a financial promotion for Pacific Assets Trust plc (the “Trust”) only for those people resident in the UK and Ireland for tax and investment purposes.
Investing involves certain risks including:
- The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
- Emerging market risk: emerging markets tend to be more sensitive to economic and political conditions than developed markets. Other factors include greater liquidity risk, restrictions on investment or transfer of assets, failed/delayed settlement and difficulties valuing securities.
- Specific region risk: investing in a specific region may be riskier than investing in a number of different countries or regions. Investing in a larger number of countries or regions helps spread risk.
- Currency risk: the Trust invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Trust and could create losses. Currency control decisions made by governments could affect the value of the Trust’s investments.
- The Trust’s share price may not fully reflect its net asset value.
Where featured, specific securities or companies are intended as an illustration of investment strategy only, and should not be construed as investment advice or a recommendation to buy or sell any security.
For an overview of the terms of investment, risks, returns, costs and charges please refer to the Key Information Document.
If you are in any doubt as to the suitability of the Trust for your investment needs, please seek investment advice.
