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):
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.
An institutional investor should demonstrate its acceptance of ownership responsibilities in its investment arrangements and investment activities.
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.
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.
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 considerations have been integrated into Marriott's:
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 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:
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.
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 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
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.
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 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.
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 voting on behalf of investors. Votes are made in accordance with the following guidelines:
All proxy voting is recorded and available on request.
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 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.
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.