ESG Report
Environmental, Social and Governance 2017
The Aurum group has a strong and committed approach to addressing environmental, social and governance issues (“ESG”), both in the way we run our business and in our approach to social responsibility.
ESG underpins the firm’s business philosophy which is built on five pillars that are essential elements to continued stability:
Performance – A proven investment philosophy achieving alpha-driven, uncorrelated, consistent returns over multiple market cycles.
High Impact Social Programmes - We are committed to contributing to a better world and to supporting a range of social and environmental projects. We also encourage charitable engagement amongst all our employees.
Culture and Stability - Continuity of people, process and philosophy ensures preservation of culture, cohesion, and stability at Aurum.
Governance - Maintaining high ethical standards and integrity safeguards sound and reliable corporate governance.
Risk - A strong culture of risk management. Aurum utilises proprietary systems to help facilitate thorough initial and ongoing due diligence, enabling us to manage portfolios whilst mitigating business risk.
Aurum believes that environmental and social issues are important to any person or entity that breathes, eats, drinks water or utilises resources. There is a misperception that human beings, businesses and economic systems are separate from the environment and social issues. Incorporating these issues is vital to running any business.
The underlying funds held by the Aurum portfolios invest in a wide range of asset classes, some for only very short time periods. In aggregate, the holdings of each Aurum portfolio are exposed to thousands of different stocks, currencies, government bonds, and commodities. The difficulty of assessing ESG compliance varies according to asset class - consider currency or volatility-focused strategies, for example. Continuous measurements of the underlying funds' investments will hopefully be possible in the future, but currently no clear ESG metrics or systems exist to access all the exposures in a timely fashion.
ESG issues are incorporated into the investment decision-making process when AFML considers prospective investments and when performing monitoring of existing investments. The core focus of this assessment is on corporate governance. AFML requires manager personnel and fund directors to have adequate skills and background knowledge. Amongst other things, internal processes, control measures, risk tools, incentive systems and policies on proxy voting and conflicts of interests are reviewed. Aurum Research Limited’s ODD team will veto an investment recommendation if a manager fails to meet AFML’s expectations. Additionally, close relationships with managers facilitate a constructive dialogue around the topic of ESG.
While AFML does not have an official exclusion policy with its underlying managers to the extent such a policy avoids investment in certain companies, AFML does monitor the largest investments in each fund's book. ARL’s CIO has previously vetoed investment recommendations in funds that had significant exposure to securities that were considered morally and ethically questionable.
Generating long-term sustainable returns is dependent on environmental, social and economic factors and is at the core of our business philosophy. We understand that a business that is not in harmony with the ecosystem within which it functions is doomed to fail. Accordingly, Aurum embraces the notion of interconnectivity and recognises that being part of an ecosystem comes with a wider social and environmental responsibility. We are very aware of the issues and misconceptions surrounding socially responsible investment (“SRI”). SRI, however, is in its infancy and we believe it will evolve and respond to these issues. We are actively monitoring this asset class and are looking to engage with providers to further broaden our understanding of their impact.
In the meantime, if an asset manager or investor is unable to implement SRI, or if SRI is not in their mandate, they can still make a difference by choosing to invest philanthropically in regeneration, conservation and positive impact programmes.
We believe that, for businesses operating today, this should be a normal expense i.e. the standard way of doing things. Businesses should give something back and try to regenerate the planet in some way. We believe the United Nations 17 Sustainable Development Goals are an important step in raising awareness and encouraging action to ensure a sustainable planet and future for those generations that will inherit it. We have, where possible, aligned our activity to meet these goals.
Environmental
Aurum Impact Investment Solution
Aurum's impact investment solution, which launched in 2002, aims to deliver returns that go beyond financial returns. The fund provides investors with an opportunity to both make investment returns and make a difference.
The advisory fee generated from the fund supports a number of charities, principally Synchronicity Earth, a registered charity that supports the conservation of biodiversity, ecosystems and species at risk around the world.
Outcome
- Aurum contributes to Synchronicity Earth’s operating expenses, which creates stability for the charity and ensures that other donations can be directed to activity that will have an impact.
Impact
- Aurum’s support has allowed Synchronicity Earth to help over 70 organisations in nearly 40 countries.
Sustainable Development Goals:
Regeneration Portfolios
In 2015 the Synchronicity Earth Regeneration Portfolio was created in collaboration with Aurum. It is an initiative to create strategic funding partnerships between corporates and environmental non-government organisations (“NGOs”) in order to regenerate natural habitats. The portfolios provide a scalable solution that can be adopted by anyone looking to engage in environmental philanthropy.
The first strategic funding partnership that Aurum supported, and continues to support, was Hutan, a Sabah-based NGO that was established in 1998 to restore highly degraded and fragmented forest patches in Malaysian Borneo.
Outcome
- Covered the costs of two full time staff and vital equipment for Hutan.
- Contributed to Hutan’s reforestation efforts at three sites.
Impact
- Hutan’s reforestation unit planted 30,582 seedlings in 2016.
- 38 native species planted across Hutan’s three sites.
- Local communities, particularly women, empowered to actively manage their natural environment and resources.
Sustainable Development Goals:
Driving Industry Change
The hedge fund industry deals with complexity and risk every day. Fundamental to its success are analysis of data and the need to understand the impact of trends and systemic change. By extending this approach to environmental impact, the industry is ideally placed to both understand the problems and be part of the solution.
Aurum has a goal to mobilise the hedge fund industry to have a net positive environmental impact.
To achieve this Aurum aims to promote articles written about Project Regeneration using social media and industry publications, and engage with participants in the hedge fund industry to support participation in regeneration portfolios.
Outcome
- Representatives of Aurum have presented the regeneration portfolio at hedge fund stakeholder meetings, to encourage engagement in regeneration portfolio funding.
- Aurum contributed an article promoting the regeneration portfolio for the AIMA journal in 2017.
- Representatives of Aurum held meetings with individual hedge fund managers to promote the regeneration portfolio.
Impact
- Albourne, a leading provider of hedge fund research, mindful of environmental impact of participants travelling long distances to its Singapore 2016 conference, supported a regeneration portfolio partnership.
- In 2016 a London-based hedge fund began a strategic funding partnership in Ecuador, to support a forest reserve in an area of rich biodiversity and begin reforestation to link the reserve to nearby protected areas.
- In 2017 a Chicago-based hedge fund began funding a strategic funding partnership in Tanzania, which will support communities to plant native forestry and agroforestry to restore local landscapes and improve sustainable agriculture.
Sustainable Development Goals:
Strategic Conservation
Harnessing the experience, resources and reach of its members and experts, the International Union for Conservation of Nature (IUCN) provides public, private and non-governmental organisations with the knowledge and tools that enable human progress, economic development and nature conservation to take place together. The IUCN has the ability to convene diverse stakeholders and provide the latest science, objective recommendations and on-the-ground expertise, driving its mission of informing and empowering conservation efforts worldwide. It also serves as an official agency monitoring progress towards biodiversity-related targets.
Aurum has been providing funding to assist in covering the core costs of the IUCN since 2012.
Outcome
- Funding for the core costs of the IUCN is crucial for delivery of a range of activities, from maintenance of the Red List of Threatened Species to championing nature’s role in achieving the Sustainable Development Goals. Core funding allows the organisation to remain strategic and deliver its mission to ‘Influence, encourage and assist societies throughout the world to conserve the integrity and diversity of nature and to ensure that any use of natural resources is equitable and ecologically sustainable.
Impact
- Increased focus on the integration of the conservation and sustainable use of biodiversity in both cross-sectoral and sectoral plans in areas like sustainable development, poverty reduction, climate change adaptation/mitigation, as well as trade and international cooperation.
- Creating sector-specific plans for agriculture, fisheries, forestry, mining, energy, tourism and transport (among others).
- Changing development models, strategies and paradigms that integrate biodiversity.
Sustainable Development Goals:
Social
Aurum has had strong links with Ark since Ark’s formation in 2002. Ark is an education charity that exists to make sure that all children, regardless of their background, have access to a great education and real choices in life. Ark believes that school improvement is not sustainable if it is attempted in isolation. It therefore works with a range of partners on initiatives to improve education systems and to help ensure that children across the world have access to high quality, inspirational education.
Outcome
- Financial support of Ark.
- A Director within the Aurum Group is a co-founder of Ark.
Impact
- Contribute to funding, and advising on, Ark’s global education, health and child protection programmes.
Sustainable Development Goals:
Founded in 2001, One to One Children’s Fund has established a significant reputation in the spheres of HIV and post-conflict trauma, by developing innovative and sustainable models to fill core gaps in care for vulnerable children. It aims to rebuild and transform lives by first identifying the greatest risks facing children and adolescents and then working with partners to pilot and deliver cost-effective interventions in healthcare, psychosocial services and education. Children and adolescents affected by HIV and AIDS, disability, disease and trauma are empowered to help them realise their full potential and lead healthy, fulfilling lives. Aurum has supported One to One Children’s Fund since its inception.
Outcome
- Aurum’s support has allowed One to One Children’s Fund to focus on core gaps in care for some of the world’s most vulnerable children, providing support to children and their families.
Impact
- Kosovo: counselling support to over 10,000 people. Provided training to 40 NGO healthcare professionals and established four day care centres for children with disabilities.
- Antiretroviral support: successful interventions during the AIDS crisis in 2000s. Established a programme enhancing treatment, testing and care in relation to HIV; this was selected as one of the Rockefeller Foundation’s top 100 innovations for the 21st Century.
- Bright Futures curriculum: worked with over 5,000 young people in 65 schools to empower girls by covering pressing issues affecting young people such as HIV, sexual health, puberty and gender-based violence.
- Enable: developed a programme to provide targeted interventions with children and families to focus on HIV, malnutrition, immunisation, early childhood development and maternal health to drastically reduce morbidity and mortality in children under the age of five.
- Greece: partnered with Refugee Trauma Initiative, an NGO providing quality psychosocial support to refugees in Northern Greece.
Sustainable Development Goals:
RedSTART’s goal is to put people in control of their finances, giving them the skills they need to successfully and sustainably manage their financial futures from a young age.
Outcome
- In collaboration with RedSTART, Aurum group employees have hosted sessions with young people aged between 10 and 18 to help put them in control of their finances, giving them the skills they need to successfully manage their financial futures from a young age.
Impact
- 38 young people have received training and tools to help them manage their money and look after their financial futures.
Aurum encourages group employees to support charities that are important to them and can make a difference.
Outcome
- Aurum runs a programme that matches each group employee’s fundraising up to £500 per year.
Impact
- In the last 2 years Aurum has assisted employees in their efforts to support the following charities:
Responsible Investment
United Nations Principles for Responsible Investment (“PRI”)
Aurum became a signatory to the United Nations Principles for Responsible Investment in 2014. The PRI works to understand the investment implications of ESG factors and to support its signatories in incorporating these factors into their investment and ownership decisions. It acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole. An alignment of Aurum's interests with its clients' interests is at the heart of any investment decision. Aurum believes that considering various aspects of ESG is an essential component to good investment decision-making. Aurum’s ODD process is designed to highlight issues that could exclude a fund based on ESG criteria.
ESG issues are incorporated into the investment decision-making process when Aurum considers prospective investments and when monitoring existing investments. The core focus of this assessment is on corporate governance. Aurum requires manager personnel and fund directors to have adequate skills and background knowledge. Amongst other things, internal processes, control measures, risk tools, incentive systems and policies on proxy voting and conflicts of interests are reviewed. Additionally, close relationships with managers facilitate constructive dialogue around the topic of ESG.
Outcome
- For Aurum’s first submission in 2014 we were awarded a B. We are pleased to report that in 2015 we improved on this, receiving an A score, which we have maintained each year since then.
Impact
- In 2017 Aurum participated in a PRI consultation to give input to its proposed ESG guidance document for hedge funds seeking to incorporate ESG matters into their businesses and their portfolios.