Investment Process

The Saturna Sustainable Funds seek to invest in sustainable and responsible issuers. The Funds’ adviser, Saturna Capital, believes that companies proactively managing business risks relating to environmental, social, and governance (ESG) issues make better contributions to the global economy and are more resilient. By using a combination of negative and positive screening, along with financial analysis and an emphasis on low debt, the Funds seek issuers who outperform their peers on a variety of ESG factors.

At Saturna Capital, we view the consideration of ESG factors as essential to identifying opportunities and forming portfolios of high-quality companies better positioned to reduce risk. We believe that a thorough review of how a company addresses ESG issues provides an important indication of how that company will perform over time.

ESG PROCESS

Saturna is committed to analyzing an issuer’s strength through a holistic lens and believes that ESG investing must include identifying how a company addresses the key sustainability factors that materially impact its industry. We have developed a proprietary scoring system which provides an assessment of how well a company performs relative to a blend of its industry, sector, and country peers in each ESG category. Using a combination of negative and positive screening, Saturna’s analysts seek issuers who outperform their peers on a variety of ESG metrics.

Saturna’s negative screening excludes firms engaged in:

We positively screen for issuers with low environmental, social, and governance risk profiles which — in addition to material and non financial ESG considerations, such as carbon emissions, water usage, renewable energy, and fair labor and supply chain practices — includes firms that show management stability and diversity, low debt, strong balance sheets, high-quality operations, and a long-term focus. The Saturna Sustainable Funds also support the fossil fuel divestment campaign by excluding energy extraction and refining companies.

In order to assess the relevance of the data used to generate our scores, we carefully examine the quantity and quality of reporting for each scoring factor, including how the reporting varies — both in response rates and the distribution of reported data — by industry, sector, country, and region.

Each ESG category is built up from related subcategories:

We evaluate companies according to their transparency (i.e., whether they report data on a given factor) and their quality (i.e., how their reporting compares to their peers). Each factor is weighted by our assessment of its importance within its economic sector, or, when appropriate, by its importance relative to its country or regional peers.

While the quantitative ESG scoring process provides an invaluable stock identification tool, we believe meaningful stock evaluation and portfolio inclusion requires active management — detailed fundamental analysis of industry, financial, managerial, and ESG considerations. Numerous pitfalls challenge quantitative ESG scoring, such as a pronounced “large-capitalization bias” since smaller companies, even good actors, may lack the resources to provide detailed ESG metrics. Key performance indicators determining executive pay present another area benefiting from qualitative review. Our belief in active management from a financial perspective applies equally to our ESG analysis.

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Sustainable Funds Investment Process

The Saturna Sustainable Funds limit the securities they purchase to those consistent with sustainable principles. This limits opportunities and may affect performance. 

Not all securities held in a Fund will be graded by the ESG scoring process. The percentage of securities not graded by the ESG scoring process or that received an overridden grade will fluctuate over time and may be a significant portion of a fund. Any particular security’s grade will fluctuate over time.