Value Square NV uses three basic strategies for Value Square Fund's Equity Selection sub-fund that incorporate ESG (Environmental, Social and Governance) criteria:
1. Negative exclusion.
2. ESG integration
3. Active share ownership (engagement).
These three basic strategies involve Value Square Fund Equity Selection excluding certain securities based on law, product category, market participation and on behavior. Three specific examples of exclusions are:
(i) Companies prohibited under the law of June 8, 2006, called Arms Law (companies whose activities consist in the manufacture, use, repair, sale, distribution, import or export, storage or transportation of anti-personnel mines, sub-munitions and/or inert ammunition and armor containing depleted uranium or any other industrial uranium within the meaning of the law and with a view to its proliferation);
ii) Companies that violate the principles of the United Nations Global Compact (human rights, labor conditions, environment, anti-corruption);
(iii) Tobacco product manufacturers and wholesale distributors.
In addition, non-excluded impacts are analyzed based on 60 parameters. Of these 60 parameters, 44 parameters can be classified as sustainability indicators or, ESG selection criteria: 5 E-criteria, 10 S-criteria and 29 G-criteria (the 5 E-criteria and the 10 S-criteria are outlined above). Each company is scored 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 70th percentile in their respective universe ("best-in-class calculations").
The assessment of a company's good governance practices (good governance) is done on the basis of 29 elements that demonstrate that a company is well governed. 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 independent directors?
3. Are the CEO and the Chairman of the Board the same person?
4. Does each committee have an independent chairperson?
5. Does the Board of Directors consist of at least one-third independent directors and one-half non-executive directors?
6. Are there equal voting rights for all shareholders?
7. Is executive compensation linked to the long-term benefit of the company?
8. Does the board of directors (management) consist of at least one-third women directors?
9. Does the company have a reputable and recognized auditor?
Corporate governance practices are closely monitored because Value Square NV believes in the concept of leading by example ("leading by example"). In this context, the corporate structure is evaluated, starting with the Board of Directors and the various committees (in particular, the committees responsible for audit, remuneration and nomination). The evaluation covers, among other things, the percentage of independent directors, the size of the Board of Directors, overboarding and diversity. Remuneration policies are analyzed to check whether 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 General Meetings of Shareholders, engagement through phone calls, email, letters, etc.
In doing so, Value Square Fund Equity Selection expects companies to be transparent about their tax policies. Aggressive tax planning is inconsistent with sustainable business practices and can increase risk to future earnings.
