ESG Integration

Throughout our investment processes, we consider the opportunities and risks raised by ESG issues

Throughout our long history of investing on behalf of our clients, our consistent aim has been to provide healthy long-term investment returns. When we design funds, carry out analysis, and make investment decisions, we consider a wide range of risks and opportunities, to ensure we can provide sustainable returns. We consider questions ranging from the short term to the long term, from macro-economic and political, to detailed questions of companies’ business models and balance sheets.

Across all these, we recognise that environmental, social, and governance issues can have a significant impact. These are often called “ESG issues” – but even though they have their own label, we do not see them as some separate category of risks. Rather, they form part of the various fundamental issues we consider in our investment work. They can present companies with risks and opportunities which can have serious impacts on the investment’s financial prospects and long-term value.

For example, at the level of an individual company, we may consider how the board and management structures can positively or negatively influence long-term strategy. How does handling of labour relations influence both efficiency and the cost base? How does the company seize environmental opportunities, or fall foul of environmental risks, such as climate change and carbon emissions? Equally, when we consider country risk, governance is always important, but social and environmental issues can also have significant impact. At the portfolio level, it is not only a question of the combined effect of these individual issues, but also one of how the portfolio is likely to react to short, medium and long-term shifts in the environment, and in social and governance issues.

The precise way in which ESG considerations are integrated varies by fund class: a passive fund cannot take the same approach as an actively managed fund selecting individual equities or credits. In those active funds, ESG plays a role throughout the process, from idea generation and screening, to case analysis, valuation, and discussion, to investment decision making and portfolio construction. It naturally feeds into our Stewardship work.