Value Square NV uses three basic strategies for the Equity Selection compartment of Value Square Fund that incorporates ESG (Environmental, Social and Governance criteria) criteria:
1. Negative exclusion.
2. ESG integration
3. Active shareholding (engagement)
These three basic strategies mean that Value Square Fund Equity Selection excludes certain effects based on legislation, product category, market participation and behavior. Three concrete examples of exclusion are:
i) Companies prohibited under the Act of 8 June 2006, known as the Arms Act (companies whose activities consist of manufacturing, using, repairing, selling, distributing, importing or exporting, storing or transporting anti-personnel mines, submunitions and/or inert munitions and armour with depleted uranium or any other industrial uranium within the meaning of the Act and for their distribution);
ii) Companies that violate the principles of the United Nations Global Compact (human rights, employment conditions, environment, anti-corruption);
iii) Manufacturers and major distributors of tobacco products.
In addition, non-excluded effects are analysed based on 60 parameters. Of these 60 parameters, 44 parameters can be classified as sustainability indicators, in other words, ESG selection criteria: 5 E criteria, 10 S criteria and 29 G criteria (the 5 E criteria and 10 S criteria are explained above). Each company receives a score based on the 60 parameters, and these scores are then ranked percentile within their respective geographic universe (North America, Europe, Emerging Asia, or Developed Asia). Ultimately, Value Square Fund Equity Selection makes a positive selection of securities that are at least in the the 70th percentiles are in their respective universe (“best-in-class calculations”).
The assessment of a company's good governance practices is based on 29 elements that show that a company is well managed. These elements can be summarized as follows:
1. Does the Board of Directors have an independent chairman?
2. Does each committee consist of at least one third of independent directors?
3. Are the CEO and Chairman of the Board of Directors the same person?
4. Does each committee have an independent chairman?
5. Does the Board of Directors consist of at least one third of independent directors and one half of non-executive directors?
6. Are there equal voting rights for all shareholders?
7. Is the remuneration of directors linked to the company's long-term benefit?
8. Does the Board of Directors (Executive Board) consist of at least one third of female directors?
9. Does the company have a reputable and recognized auditor?
A company's management practices are closely monitored because Value Square NV believes in the concept of leading by example. In this context, the business structure is evaluated, starting with the Board of Directors and the various committees (in particular, the committees responsible for audit, remuneration and appointment). The evaluation includes the percentage of independent directors, the size of the Board of Directors, overboarding and diversity. The remuneration policy is analysed to verify that there is a balance between long-term incentives and other rewards. Shareholder rights fall under this umbrella (poison pills, unequal voting rights, etc.).
Engagement includes voting and asking questions at Shareholders' General Meetings, engagement via phone calls, email, letters, etc.
In addition, Value Square Fund Equity Selection expects companies to be transparent about their tax policy. Aggressive tax planning is not in line with sustainable business practices and may increase the risk to future income.
