Dalton Investments (“Dalton”) previously made the decision to formalize and publish its Sustainable Investment policy on March 18, 2018, amended (i) on November 14, 2019 to incorporate the UN Principles for Responsible Investment, (ii) on January 1, 2020 to incorporate UCITS-specific processes and (iii) on November 2, 2020 to incorporate the Climate Action 100+ initiative. As of June 2022, all of Dalton UCITS fund offerings* meet the classification of an Article 8 (SFDR Regulation), as they promote environmental and social characteristics. The firm’s adherence to its Sustainable Investment Policy when determining what investments to make for these funds was a core attribute in obtaining the Article 8 classification.
This policy covers the integration of Environmental, Social and Governance (“ESG”) risk analysis into Dalton’s investment process and Dalton’s policy on stewardship of client assets. Dalton makes its Sustainable Investment policy public due to the increasing desire from clients to understand and assess the approach of asset managers towards sustainable investment and our desire to provide as much transparency as possible to clients. As long-term focused investors, Dalton takes our role as stewards of client capital seriously and frequently engages with company management in order to maximize risk adjusted returns for our clients. We also have a primary focus on capital preservation and as such seek to understand the key risks, including ESG risks, of individual investments we have made on behalf of our clients.
Sustainable Investment Policy
As long-term focused investors, we take our role as stewards of client capital seriously and actively engage with company management in order to maximize risk adjusted returns. Dalton’s process does not begin by excluding companies based on environmental or social risks, rather it incorporates ESG into our holistic assessment of potential investments. Our emphasis is on the governance risk. The particular focus relates to two key elements of the firm’s investment philosophy:
- Investing in businesses where our interests as minority shareholders are aligned with the company’s management, and
- Where the company’s management has a track record of good capital allocation decisions, which have created long term value for all shareholders.
Another of Dalton’s key criteria is to invest in what we consider to be good businesses. Environmental and social risks (either at an industry or company-specific level) are considered in our assessment of the strength of individual businesses and the risks associated with them. Dalton uses a number of resources to deepen its knowledge of business and governance practices at investee companies, including daily market news, proxy voting research and the use of dedicated internal resources focused on wider ESG considerations.
Furthermore, Dalton seeks to take an active approach to ownership of its portfolio companies, in an effort to maximize risk adjusted returns for clients and fulfill its fiduciary duties. Where possible and when deemed appropriate, Dalton will engage companies seeking to promote positive change on ESG matters. We believe that dialogue with investee companies as well as proxy voting are ways to add value to the investment process and that stronger ESG practices will be reflected in better company and stock performance. Through constructive engagement with company management, from a medium term to long term perspective, we believe that we can help promote an investee company’s sustainable growth. Additionally, we seek to enhance ESG practices at investee companies through proxy voting. From time to time, Dalton will collaborate with other institutional investors for collective engagement with investee companies, as necessary. On August 31, 2020, Dalton became a signatory to the Climate Action 100+ initiative and committed to collectively engaging companies to:
- Curb emissions
- Improve governance
- Strengthen climate-related financial disclosures
Dalton believes that improving company governance, curbing emissions and strengthening disclosures increases the risk-adjusted return potential, whilst also serving to help tackle the systemic risk that climate change represents.
In connection with adhering to the United Nations Principles for Responsible Investment (the “UN PRI”), Dalton commits to the following six principles (the “UN PRI Principles”):
- To incorporate ESG issues into investment analysis and decision-making processes;
- To be an active owner and to incorporate ESG issues into our ownership policies and practices;
- To seek appropriate disclosure on ESG issues by the entities in which we invest;
- To promote acceptance and implementation of the UN PRI Principles within the
- To work with the PRI Secretariat and other signatories to enhance their effectiveness in implementing the UN PRI Principles;
- To report on our activities and progress towards implementing the UN PRI Principles.
Dalton is proud to be a signatory of the UN PRI as well as the Japanese stewardship code and the Korean equivalent. Indeed, Dalton was the first US based investment firm to sign the Korean stewardship code. Adoption of the codes is consistent with our value investing discipline and reflects our commitment to capital preservation and long-term growth.
Within its UCITS product range*, serving the European investment community, Dalton has adopted the following ESG principles. Dalton’s investment process for UCITS products will include exclusionary screens based on the World Bank Group’s International Finance Corporation (“IFC“) Exclusion List. The ESG screens for UCITS products will be similar to the IFC Exclusion List, but not identical. Businesses screened out will include those that engage in the production of weapons, liquor, tobacco products, non-medical radioactive products, production of asbestos, or any product or activity deemed illegal under host country laws or international conventions; and exposure will be limited in companies that produce thermal coal or that derive oil from oil sands extraction.