ESG analysis

For us, ESG analysis is an integral part of stewardship

To gain a full understanding of how sustainability factors can influence a company’s future returns, they must be embedded throughout the investment process – from idea generation and stock research, to financial modelling and portfolio construction. In our view there are three core strands to ESG analysis:

Stewardship process loop

Identification

  • Identify material ESG factors
  • In-house industry frameworks used as a guide
  • Understand the potential impact on returns

Integration

  • Incorporation of key ESG factors into the investment case
  • Consideration of business aspects likely to be impacted
  • Financial modelling and portfolio construction

Active Ownership

  • Monitoring and engagement of investee companies
  • Private and collaborative engagement
  • Proxy voting
  • Disclosures and reporting

Identification

We spend significant time recognising the ESG factors most material to a company’s business model. The overarching aim is to assess the extent to which ESG factors will contribute to/detract from the long-term value of a firm.

What we look for

Governance

We value transparency and clear accountable governance structures, paying considerable attention to the extent to which a company demonstrates alignment with the interests of long-term investors.

Board leadershipBoard leadership, diversity and independence
RenumerationManagement remuneration
Shareholder rightsShareholder rights
Succession planningSuccession planning
AccountingAccounting and audit standards

Environment

Knowing how a company identifies and manages potential environmental issues helps us to understand how it is preparing for changes to regulation and disclosure requirements.

PollutionPollution
Water usageWater usage
Climate changeClimate change (emissions)
Energy efficiencyEnergy efficiency
Resource managementResource management

Social

How a company treats its people, customers and other stakeholders, can give valuable insight into its culture – a good proxy for long-term business success.

Data protectionData protection and privacy
Equality and diversityEquality and diversity
Community relationsCommunity relations
Human capital managementHuman capital management
Product safetyProduct safety and liability
Supply-chain managementSupply-chain management
Human rightsHuman rights

Integration

ESG factors are integrated into our fundamental analysis and decision-making process for a more complete picture of a company’s financial and non-financial performance.

Active Ownership

This is about developing strong relationships with companies to gain greater insight, and build conviction in the sustainability of their business models, as well as engaging to improve ESG practices.

Engagement

At the heart of each stage of our ESG process is engagement. Led by our portfolio managers and analysts with day-to-day responsibility for investment decisions, we engage through a range of interactions: one-to-one with individual firms; in collaboration with other investors (through initiatives such as those run by the Principles for Responsible Investment [PRI]); with outside bodies, including government departments or non-governmental organisations (NGOs); and with other relevant stakeholders.

View full Stewardship annual report 2019