Environmental, social and governance investing is key to sustainable returns.
When you invest with us, you can have peace of mind that your money is invested to generate good returns. Companies that have a positive impact on people and the environment, and apply good governance, are more likely to deliver sustainable risk-adjusted returns over time. This is why we consider a range of environmental, social and governance (ESG) factors in our long-term valuation-based approach.  

Environmental, social and governance investing is becoming a key aspect of investment policies worldwide.
For background, see our previous article that explains what environmental, social and governance investing is and how it fits into the broader category of sustainable investing. So, how do we approach and incorporate ESG factors when we make investments decisions?

We believe that focusing on fewer specific goals where companies can have an impact will be more effective. For example, for a mine in the middle of the country, ‘life on land’ is a much bigger concern than ‘life on water’.

Defining our approach in more detail.
As long-term orientated, valuation-based investors, our investment process incorporates ESG matters into both a qualitative and quantitative sense, by factoring in pertinent ESG factors that a company has control over into our company valuations. Our ESG analysis focuses on areas that we believe are essential for a company to sustain competitive advantage over the long term, since we believe ESG risks are more likely to materialise and be priced in over the long term. Integrating ESG into our investment analysis helps improve the risk-and-reward profile of our portfolios, since it considers the valuation, sustainability and fundamental risks of every portfolio position.

What this means in practice – these are the specific steps we take to build ESG into our investment process.
 

• Identify specific ESG factors pertinent to each company
  We have included ESG factors to enhance our existing investment database. We assess fund managers across the following six pillars:

1. Commitment to responsible investing
2. Integration of ESG factors into the investment decision-making process 
3. Proxy voting participation
4. The depth and quality of corporate engagement
5. ESG transparency and disclosure
6. Overall support and presence in the broader responsible investing community

• Analyse and monitor over time
  We assess what management are doing to address any potential issues and monitor the rate of change. Ultimately, a forward-looking approach is necessary. We also compare companies against their peers.
  
  
• We use external data where necessary
  We access global datasets via Thomson Reuters and engage with experts where necessary, to help inform our understanding and/or assessments.
  
  
• Assess the impact, if any, on earnings, cash flows and rating
  We differentiate between cyclical (temporary) and structural issues and discount the valuation for companies to varying degrees, as appropriate.

Engagement is key to accommodate companies’ transition to a committed ESG approach.
ESG requires a transition, and most companies that we look at are embarking on this transition. We therefore follow an engagement approach, not an exclusionary approach where we simply invest or divest without first investigating and monitoring the company’s ESG performance. We believe this can help contribute to a more sustainable investment universe for all investors. 
 

Want to know more about our approach to ESG investing? Here’s what to do:
 

• Visit our webpage on responsible investing to find out more about our ESG Investing Policy and our Engagement Policy.
• Contact your wealth manager.
• If you’re not a client yet and want to find out more about investing with us, we would love to hear from you. You can contact us on 0860 111 263 or complete an online contact form.

DISCLAIMER
This information is for general information purposes only and is not legal advice.