The Mackenzie Ivy Team: Our approach towards responsible investing

Philosophy: Using ESG analysis to better understand the companies we invest in

The Ivy Team’s overall investment philosophy centres on the belief that a concentrated portfolio of high-quality businesses, bought at reasonable prices, will deliver strong, long-term, above-average returns. The team has a long-term mindset, which allows it to focus on identifying businesses with sustainable competitive advantages and positive corporate cultures that respect society at large.

How the Ivy team interprets ESG

Every Ivy team member is responsible for ESG analysis and integration. This means that the person who conducted the initial due diligence is also accountable for the investment decision and for monitoring that decision. This process ensures that all relevant information uncovered during the due diligence phase is incorporated into the investment decision. Also, making the ESG analysis the responsibility of every team member ensures that it is incorporated holistically into all investment decisions.

Ivy ESG scoring system:

Excellent
Good
Neutral
Below average
Poor

Ivy’s three-step ESG process

Ivy’s ESG process consists of three stages: identification, assessment and integration.

The Ivy team first identifies ESG strengths, weaknesses, opportunities and threats through proprietary research. This involves studying a wide variety of sources, such as regulatory filings, corporate social responsibility reports, conference call transcripts and industry associations. During this stage, reference from the Sustainable Accounting Standards Board (SASB) helps the Ivy team to focus on the most relevant information likely to impact investment performance. Upon completing the proprietary research, the team examines third party ESG information from sources such as Sustainalytics and MSCI, to ensure a completely thorough analysis.

This stage of Ivy’s ESG process aims to confirm strengths and weakness, as well as to determine if any ESG opportunities and threats uncovered in the identification stage are material to performance. These considerations include when the impact is expected to happen, the size of the impact and the probability of it occurring. Ivy will also consider whether management is well prepared for ESG opportunities and risks, considering this as an important sign of robust contingency and long-term planning. Where appropriate, Ivy will engage with management teams to better understand their plans to mitigate risk and/or capitalize on opportunities.

Ivy’s ESG analysis is integrated into its investment decision-making process in the way that it assesses a company’s quality, either positively or negatively. This quality rating helps determine whether Ivy will invest in a company at all and if so, by how much. Ivy’s ESG analysis may also have an impact on expectations for a company’s long-term growth and economics, which can also influence the size of the investment.

How Ivy’s ESG analysis impacts its investment decisions

1. Identification stage:

Ivy noted that Costco’s corporate culture emphasizes taking care of members and employees and is an ESG strength from a social perspective.

2. Assessment stage:

Ivy confirmed this strength by examining high average employee income, high average tenure and strong employer ratings on third-party websites. By investing in its employees (by offering relatively higher wages and benefits, as well as promoting from within), Costco encourages high employee loyalty, commitment and productivity while reducing costs related to turnover and inventory losses (such as shoplifting and employee theft).

3. Integration stage:

The long-term thinking inherent in Costco’s approach to employee relations increased Ivy’s confidence in the quality of Costco’s management. Ivy also expects Costco to be less impacted by any potential regulatory minimum wage increases. Ivy’s analysis concluded that Costco’s corporate culture and employee governance will positively contribute to its long-term success and competitive advantage, and as a result Ivy was comfortable establishing a position in Costco.

Learn more about the Ivy team’s funds here.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The content of this page (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.