Purpose Investments - ESG Policy

January 2023

1. Introduction and General Principles

Purpose is an investment company that builds products around its core beliefs, whether they relate to investment principles such as market efficiency, fundamental value and diversification, investor utility, or societal impact. Specifically, this policy (the “ESG Policy”) provides a broad understanding of our approach to the integration of Environmental, Social and Governance factors into the investment considerations for ESG-Related Funds (as defined below). We believe that:

  • incorporating environmental, social, and governance factors into our investment processes can be conducive with superior long-term performance while also generating a positive benefit broadly on society
  • more information makes for better transparency, and correspondingly, better security selection and more robust ESG processes; and
  • responsible stewardship of capital will reward corporate ESG leaders while pressuring laggards to adopt better sustainability practices.

While individual portfolio managers may apply ESG in different ways across the breadth of our investment strategies, in general, we favour an integration approach and do not apply a negative screening framework at the firm level. We do not limit a portfolio manager’s access to any specific industry, sector or issuer.

Note that this Policy sets out the general approach and requirements with respect to Purpose ESG-Related Funds. However, Purpose and its portfolio managers retain the ability to make decisions in the best interest of said funds, and as such, may make exceptions to this Policy subject to its discretion (insofar as such exceptions comply with securities requirements and the applicable prospectus). The most up-to-date and accurate disclosure for the ESG considerations with respect to any Purpose ESG-Related Fund is that fund’s official disclosure materials (i.e. its prospectus, which can be found on SEDAR or the fund’s webpage).

2. Scope

2.1. ESG-Related Funds

Purpose integrates ESG in products throughout its fund offerings where our experienced Portfolio Managers believe ESG strategies and/or objectives are appropriately aligned with that fund’s mandate. In practice, this means we incorporate an ESG framework into a specific subset of our funds where the investment strategy applies active security selection for single securities, referred to hereinafter as “ESG-Related Funds.”

In general, we do not integrate ESG within funds that offer passive or enhanced yield exposure to defined underlying assets, funds that express views solely through market indices rather than individual issuer securities, and sub-advised white label products that are not core offerings of our Purpose product lineup. The full list of Purpose funds that are covered by the following policy is included as Schedule A to this Policy.

2.2. Purpose ESG Strategies – Overview

Where our funds incorporate ESG strategies, we do so driven by a discretionary and/or quantitative approach and across asset classes, but always subject to the fund objectives stated in the applicable prospectus and the respective portfolio manager of said fund. The specific approach to ESG integration utilized by our portfolio managers will depend on a variety of factors including the fund’s objectives, the asset class, time horizon, as well as the unique research and portfolio construction methodologies, philosophies and processes used by each of our portfolio managers.

3. Consideration of ESG Factors in ESG-Related Funds

3.1. Key ESG Factors

In managing the security selection process for ESG-Related Funds, we apply ESG as a three-pillared investment paradigm based on the notion that companies that better manage their impact on society will be more successful over the long term, which improves investment returns.

Key ESG factors across these three pillars are enumerated below (note that this list is not intended to be exhaustive):

ESG Policy Graphic

By incorporating ESG factors into our decision-making processes, we generate insights that are not necessarily captured by traditional financial modeling and consequently, we engender a more thorough review process with respect to ESG when making security selection decisions.

3.2. Integration vs. Exclusionary Approach

When managing ESG-Related Funds, portfolio managers employ an “integration” approach rather than an “exclusionary” one. Integration involves combining traditional fundamental analysis with ESG factors to tilt portfolio exposures, rather than excluding (i.e. shrinking) the securities in the investable universe by wholly eliminating certain industries or companies.

There is no one-size-fits-all approach to integration, as it is heavily dependent on context and an individual portfolio manager’s judgement. Integration is a nuanced approach that aims to reflect a multitude of ESG issues across different sectors and business activities. For example, environmental factors are likely to matter much more in resource sectors than communication services, while product safety is critical in consumer discretionary and corporate governance matters everywhere.

3.3. ESG Integration Strategies

When managing ESG-Related Funds, portfolio managers employ use a combination of top-down, bottom-up and quantitative tools as a part of its discretionary security selection discipline, such as:

  • Top-down ESG screenings and rankings across target sectors: Relative ESG factor rankings will generally inform security selection (where all other factors are equal, according to the view of that portfolio manager).
  • Bottom-up, company-specific ESG risk analysis: Use a combination of primary research and third-party (e.g., Sustainalytics) research to assess ESG characteristics of a prospective portfolio company.
  • Quantitative ESG integration: Incorporate proprietary ESG scores into systematic multi-factor security selection models alongside traditional inputs such as value, quality, momentum, etc.

The objectives of these processes are to direct our research toward ESG leaders and to build risk-adjusted return expectations that incorporate ESG inputs. Within quantitative strategies, ESG integration is intended to drive security selection that favours companies with better ESG profiles (all else being equal). ESG factors are expected to be material inputs but not the primary drivers of security selection and portfolio positioning. As a result, it is possible that securities relating to businesses that appear inconsistent with an ESG mandate may be included in a fund that incorporates ESG integration.

3.4. Stewardship

We believe that engaging with issuers is an important part of being a long-term active owner and, in some cases, engaging with them on ESG topics may be appropriate to improve performance and reduce risk. As part of its ESG approach, Purpose may opt to engage the processes available to any of the ESG-Related Funds as an investor in a specific security. Such decisions will always remain within Purpose and its Portfolio Manager’s ultimate discretion, and decisions will always be made in the best interests of the respective Purpose ESG-Related fund. Just as we have unique approaches to ESG integration for each of our strategies, our approach to engagement varies by strategy as well and is based on factors such as the methods of engagement available, the Fund’s objectives, and other asset class-specific considerations. Such decisions will always remain within Purpose and its Portfolio Manager’s ultimate discretion, and decisions will always be made in the best interests of the respective Purpose ESG-Related Fund.

3.4.1. Proxy Voting

For certain ESG-Related Funds, Purpose has partnered with Glass Lewis, an American proxy advisory services company that provides governance services to support engagement among investors through its research, proxy vote management, and technology platforms. For these specific funds, we rely on the application of Glass Lewis’ ESG Policy and Climate Policy [1] (which are aligned with Task Force on Climate- Related Financial Disclosures [2]) to inform Purpose’s votes on behalf of said funds and ensure that the companies we invest in are effectively overseeing and managing ESG risk.

For additional clarity, all proxy voting is subject to Purpose’s Proxy Voting policies and procedures.

4. Internal Purpose ESG Governance

Purpose has appointed an ESG Committee that oversees the firm’s overall strategy for ESG analysis and the performance related to specific ESG-Related Funds. The Committee consists of the CIO and other members of the portfolio management, product teams, as appropriate.

The responsibilities of the ESG Committee include:

  • Developing and evolving Purpose’s high-level approach to ESG implementation
  • Providing the investment team with sufficient resources and training to effectively incorporate ESG into their investment and ownership decisions
  • Leading a continuous process to identify and review potentially controversial holdings and those that score poorly on an absolute and/or relative basis
  • Ensure, or engage other providers to ensure, proxy voting is in line with the firm’s active ownership objectives
  • Documenting and record-keeping for all of the above, including meeting notes, presentations, work product, portfolio management notes, etc.

The Committee meets monthly, and on an ad hoc basis, as necessary, in order to meet these responsibilities.

5. Public communications about ESG

While ESG is a material consideration and/or strategy for some Purpose funds, we are not an impact firm and ESG factors are not the primary drivers of our investment processes across the firm, nor within the ESG-Related Funds specifically. As such, our Portfolio Management and product teams work closely with our distribution and sales team to communicate our ESG approach to prospective investors. To the public, we are vigilant to ensure we do not overstate the role of ESG in our investment processes.

For additional clarity, all ESG related communications and marketing materials are subject to Purpose’s Marketing Materials and Sales Communications policies and procedures. Compliance review processes shall apply as described therein.

6. Compliance Monitoring and Testing

On a quarterly basis, the Compliance team must monitor compliance with this Policy. Specifically, the Compliance team must review the ESG Committee meeting records and/or supplementary materials, as applicable, to ensure that the required responsibilities and documentation requires have been met. Any deficiencies discovered in the monitoring process must be reported to CIO and CCO.

[1] Purpose and Glass Lewis have implemented a specialized application and prioritization of certain components of Glass Lewis’s existing policies cited here. [2] https://www.fsb-tcfd.org/

Appendix I: List of Purpose ESG-Related Funds

Purpose Core Dividend Fund, Purpose Tactical Hedged Equity Fund, Purpose Real Estate Income Fund, Purpose Core Equity Income Fund, Purpose Canadian Preferred Share Fund, Purpose Marijuana Opportunities Fund, Purpose Strategic Yield Fund, Purpose Multi-Asset Income Fund, Purpose Global Climate Opportunities Fund, Purpose Enhanced Premium Yield Fund, Purpose Global Resource Fund, Purpose Special Opportunities Fund, Purpose Global Bond Class, Purpose US Dividend Fund, Purpose International Dividend Fund, Purpose Global Bond Fund, Purpose International Tactical Hedged Equity Fund, Purpose Conservative Income Fund, Purpose Premium Yield Fund, Purpose Enhanced Dividend Fund, Purpose Diversified Real Asset Fund, Purpose Multi-Strategy Market Neutral Fund, Purpose Select Equity Fund, Black Diamond Impact Core Equity Fund, Purpose U.S Preferred Shares Fund.