Marriott ESG Investment Policy

Rationale

At Marriott, our investment objective is to create financial peace of mind through predictable investment outcomes by applying an Income Focused Investment Style. This investment style requires the selection of securities that produce reliable dividends (income streams), ideally growing.

In the wake of the global financial crisis and numerous "big business" scandals, corporate behaviour which is unethical, irresponsible, or harmful to the environment is rightfully no longer being tolerated by regulators and consumers alike. Changes to industry regulations, or a damaged reputation can prove extremely costly and represent a significant risk to a company's ability to pay reliable dividends over the long term. As such, Marriott's Income Focused investment style aims to exclude these companies from our investable universe and is therefore aligned with sustainable investing.

This investment philosophy strongly aligns with the 5 principles of the Code for Responsible Investing in South Africa (CRISA):

Principle 1:

An institutional investor should incorporate sustainability considerations, including ESG, into its investment analysis and investment activities as part of the delivery of superior risk-adjusted returns to the ultimate beneficiaries.

Principle 2:

An institutional investor should demonstrate its acceptance of ownership responsibilities in its investment arrangements and investment activities.

Principle 3:

Where appropriate, institutional investors should consider a collaborative approach to promote acceptance and implementation of the principles of CRISA and other codes and standards applicable to institutional investors.

Principle 4:

An institutional investor should recognise the circumstances and relationships that hold a potential for conflicts of interest and should pro-actively manage these when they occur.

Principle 5:

Institutional investors should be transparent about the content of their policies, how the policies are implemented and how CRISA is applied to enable stakeholders to make informed assessments.


ESG process integration

ESG considerations have been integrated into Marriott's:

Security filter process

1. ESG integration into Marriott's Security filter process

A key discipline of Marriott's income focused investment philosophy is to only invest in companies which produce reliable and consistent income streams. In applying our investment style, Marriott has... Read More

always considered sustainability across ESG factors. In our opinion, a company with inadequate ESG practices will be unable to produce sustainable reliable dividends over the long term and therefore will not make it through our strict investment filter process as outline below:

Security Filtering Process:

  1. Market Cap Filter: South African Companies need to have a market capitalization of more than R5 billion, and international companies need to be listed on either the S&P 500, FTSE 350, FTSE Eurofirst 300. This excludes smaller more speculative investments.
  2. Dividend Filter: Companies that have not paid dividends over the last 3 years are filtered out.
  3. Economic Screen: We exclude companies vulnerable to changing economic conditions.
  4. Industry Screen: Companies operating in unpredictable industries are filtered out, such as commodity producers.
  5. Company Screen: We avoid companies with specific risks to dividends, for example, companies with too much debt or ESG concerns (e.g. Steinhoff, Sasol and African Bank).
  6. Yield Screen: Companies offering investors best value are selected from the remaining pool of securities (Marriott's investable universe). A security/investment will only be included in a portfolio if it enhances the portfolio's yield/growth trade-off.

From a credit perspective, ESG is inherent in the portfolio construction process as we only invest in the corporate debt of the securities that form part of our property and equity investable universe.

2. ESG integration into Marriott's company results reporting process

We subscribe to the principle that investment risk lies with income growth.

Unlike income yield, which is known at the time of investment, income growth is less predictable. Therefore, capital accumulation by re-investing income is a more certain and predictable way of increasing the value... Read More

of an investment. Over the longer term, however, capital value growth resulting from income growth will generally produce a greater increase in investment value. The more predictable the income growth, the more predictable the likely investment outcome.

To ensure an ongoing assessment of risks to future dividends the Investment Committee has identified a number of "flags" that analysts are required to report on each time a company we invest in releases financial results. Flags include:

Significant changes to management behaviour

  1. Significant changes to the company's pay-out ratio
  2. Cash flow
  3. Debt
  4. Regulatory changes
  5. M&A activity
  6. ESG Concerns

Any significant issues in any one of these areas could lead to an outright "sell" decision as the predictability of dividends will likely be compromised.

3. ESG integration into our Quarterly portfolio review process

As ESG coverage has widened several quality data providers have developed highly specialised ESG teams that provide in-depth ratings of a company's Environmental, Social and Governance performance. We therefore... Read More

incorporate their analysis and reporting into our quarterly portfolio review process in order to supplement our own ESG assessment and understanding.

Our two chosen data providers at this time are MSCI and Refinitiv. We recognise that the specialist teams have the extensive ESG analytical skills and experience required and we therefor formally review their scoring of both our funds and individual equities.

Although our funds and equities naturally score well, on average, as a result of our stringent underlying investment philosophy, we do require our equities to meet the following minimum requirements:

MCSI (Scale = AAA -› CCC): Minimum requirement of BB

Refinitiv (Scale A+ -› D-): Minimum requirement of C-

If a company does not meet a minimum overall ESG score of BB (MSCI) or C- (Refinitiv) the default action is to exclude the stock from the portfolio.

We recognise, however, that certain nuances are present in ESG scoring. For example, a stock may receive a poor rating due to non-documentation of certain ESG reporting, but the underlying actions of the company remains ESG compliant. As such, if a company does not meet the required criteria, the analyst covering the stock may put forward a case for the company's continued inclusion. If accepted by the Marriott Investment Committee, this case will be documented, and reviewed on a quarterly basis to ensure that it remains valid and the stock inclusion remains appropriate.

4. ESG integration into our proxy voting process

The Marriott investment committee has a fiduciary duty to manage client investments to the best of their ability taking into account Market Conduct and ESG principles. This includes... Read More

voting on behalf of investors. Votes are made in accordance with the following guidelines:

  1. In acting as a responsible steward of assets, all proxies are voted in a manner consistent with mandates, the Marriott investment style and local regulatory requirements.
  2. Give careful consideration to each proxy.
  3. Give careful consideration to Market Conduct principles.
  4. Give careful consideration to Environmental, Social and Governance (ESG) factors.
  5. Ultimately voting is done in the best interests of investors to provide them with sustainable, predictable investment outcomes while considering the above.

All proxy voting is recorded and available on request.

5. ESG integration into Marriott's company engagement process

At a minimum, Marriott engages management whenever we require additional information to satisfy concerns pertaining to a company's ability to continue paying reliable dividends. This includes... Read More

the quality of ESG reporting and particular ESG concerns. If the feedback received does not alleviate those concerns, or at a minimum provide comfort in the form of a commitment by management to address the problem area our default position is to sell out of the stock completely.

In these engagements Marriott is cognisant of price sensitive information and will not seek to gain or act on any price sensitive information.

6. ESG integration into Industry collaboration

As an active member of the South African investment community Marriott will collaborate with other members in order to promote sound ESG practices where considered appropriate.

Local Investments

What do you want to do?

Minimum investment

Product

Grow your wealth but have access to it when you need it.

R500 lump sum and/or R300 debit order

Unit Trusts

Draw an income from your retirement savings.

R50,000

Living Annuity

Draw an income from your personal wealth savings.

R50,000

Income Solution

Save for retirement in a tax efficient way.

R10,000 lump sum and/or R300 debit order

Retirement Annuity

Transfer your retirement savings when changing employment.

R50,000

Preservation Fund

Offshore Investments

What do you want to do?

Minimum investment

Product

Invest in an offshore share portfolio.

£25,000

International Investment Portfolio (GBP)

Invest in a direct UK real estate Fund.

£10,000

First World Hybrid Real Estate plc (GBP)

Invest in currency accounts in £ or $.

£25,000 or $30,000

Smart International Income Portfolio

Invest in offshore unit trusts.

£1,000 or $1,000

Unit Trusts (USD and/or GBP)

Invest in global unit trusts.

R500 lump sum and/or R300 debit order

Unit Trust Feeder Funds (ZAR)

Preservation Fund

Where

Minimum investment

Product

I am transferring from a ...

R50,000

Pension Fund

I am transferring from a ...

R50,000

Provident Fund