Despite the increased industry focus on ESG, there is yet to a develop and standardised approach. ESG still means different things to different investors. There is also a broad distribution of the role that ESG factors currently play in client portfolios. Some have fully incorporated ESG into their assessments while others are at the beginning of this process.

This document seeks to lay out Mayar’s approach to integrating ESG into our investment process. The policies outlined in this document apply to both the Mayar Fund and the Separately Managed Accounts.

Since inception in 2011, the assessment of Environmental, Social and Governance (ESG) risks and opportunities has been an integral part of the Mayar Investment Process. At Mayar, we approach the craft of investing with a responsible private business owner’s mindset. We believe that an ethical-owner approach is essential for generating long-term returns. Our assessment of the sustainability of a business, the intrinsic value and the margin of safety required to invest is indivisible. By thinking like business owners, we only invest in companies consistent with both our ethical and investing values.

Mayar Capital supports the Paris Agreement on Climate Change. To find out more about the Paris Agreement, please click here.

Defining ESG Integration as an active equity manager

Conventional fundamental analysis has long relied on both quantitative and qualitative risk factors. The integration of ESG factors into the investment process is at the heart of our assessment of these risk factors.

Mayar’s experience demonstrates nonfinancial factors are critical to ensuring sustainable growth. To that end, we have long considered factors beyond traditional financial analysis in our investment decision-making.  This reflects a key pillar of our Partnership Principles.

For Mayar, ESG factors are representative of risk factors, which, in general, have different time horizons. Our strategy seeks to identify great businesses. We anticipate that these businesses will have sustainable competitive edge and our analysis seeks to uncover whether that ‘economic moat’ can be breached by other businesses, changes in consumer behaviour or legislative initiatives. The following section outlines our philosophy to incorporating ESG.

Environmental

The climate emergency has focussed attention on environmental risk factors. For some companies, this means that their business models will be under increasing pressure as a result of the industry in which they operate. We believe that firms in the extractive industry sectors have a limited lifespan in their current guise. We cannot forecast exactly when this will take place, nor the exact nature of government or consumer pressure in the meantime. As such, Mayar has never invested in companies in extractive industries and have formalised this principle.

Social

Mayar’s investment process takes into account the social impact of a company’s activity. In some instances, this can be sectoral. For example, Mayar explicitly restricts investments in the tobacco and alcohol sectors. However, in permitted sectors, the boundary between what constitutes an ethical investment and what doesn’t is not always clear cut. Our quantitative and qualitative analysis attempts to make this distinction. The checklist at the heart of our process is designed to scrutinize all aspects of the financial and ethical case for owning a business.

One of the ways in which we assess the social impact of a company in non-restricted sectors is to answer the question of how a layperson might react if the business practices of a company were described to them.

Governance

If the impact Environmental and Social risk factors can be measured in years, the impact of poor governance can be felt immediately. Our investment process examines the governance structures within a company and the actions of insiders. Related-party transactions and equity transactions are areas of focus which help us understand the commitment to and the strength of governance structures. The standards we set ourselves as stewards of our clients’ investments is extended to businesses in which we invest.

Principles of Responsible Investment

The processes outlined in this document incorporate our experience of equity investing since 2003. As a signatory of the UN Principles for Responsible Investment (PRI), Mayar’s policy is designed to align with the six PRI principles.

As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, Mayar Capital commits to the following:

• To incorporate Environmental, Social and Corporate Governance (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 Principles within the investment industry;

• To work with the PRI Secretariat and other signatories to enhance their effectiveness in implementing the Principles;

• To report on our activities and progress towards implementing the Principles.

Engagement & Proxy Voting

Subject to specific mandate restrictions, Mayar is generally responsible for voting proxies and taking decisions in connection with proxy voting with respect to investments held by or held on behalf of the clients for which it serves as investment manager/adviser. When given responsibility for proxy voting, Mayar will take reasonable steps to ensure that proxies are voted in the best interests of its clients. Protecting the long-term interests of its clients is the primary consideration for Mayar in determining how to protect such interests. This generally means proxy voting with a view to enhancing the long-term value of the securities held by or on behalf of our clients, through maximising the value of securities, taken either individually or as a whole. Mayar bases its proxy votes on reasonably available information, in other words, information that is clearly relevant and cost-effective to obtain. We also consider our experience with respect to similar proxy proposals, the perception of the motivation behind a proxy proposal, the manner in which the proxy proposal is structured, and other facts and circumstances related to the proposal. Mayar does not employ the services of proxy voting advisers, nor does it engage in stock lending activity. Except to the extent required by applicable law or otherwise approved by Mayar, it will not disclose to third parties how it has voted a proxy on behalf of a client. However, upon request from an appropriately authorised individual, Mayar will disclose to its clients or the entity delegating the voting authority to Mayar for such clients (e.g., trustees or consultants retained by the client), how Mayar voted such client’s proxy. As a general rule, Mayar will vote all proxies that a client has authorised it to vote and that it receives in a timely manner, unless it is not in the client’s best interests to vote. Voting may not be in a client’s best interests if, for example, it blocks Mayar’s ability to trade the shares of the underlying.

Details of voting activity is recorded and Mayar provides data to clients whose mandates require the information. Mayar will retain the following documents in its offices for at least five (5) years:

• Records of any written requests for proxy voting information by clients and any written response by Mayar;

• A copy of all the proxy statements received regarding client securities ; and

• Records of votes cast on behalf of clients. Proxy Voting Records for a particular client will be made available, upon request, to the client’s named fiduciary or authorized representative.

Mayar will be responsible for notifying each new client how it may obtain copies of those documents as well as a copy of these procedures. Mayar will provide further updates to this information in the event that significant developments in its approach occur.