ESG Integration

Consideration of environmental, social and governance (ESG) issues is an integral part of our investment process. As long term investors, we believe that companies with sound governance and that act responsibly within their environment and society as a whole will outperform. Further, where appropriate, we use our influence as shareholders to hold the investee companies to account, and to support them to improve in these areas.

Our process is predicated on the fact that the widely available industry ESG ratings provided by vendors  such as Bloomberg, Sustainanalytics, etc. simply do not offer the necssary depth of coverage for the vast majority of smaller corporate entities worldwide. As this is the case any ESG ratings for funds predominantly made up  of smaller companies will be incomplete and therefore not a reliable indicator of the fund’s ESG position.  

Our process involves meeting investee company senior management face to face having already reviewed a wide range of data for the company, research notes from brokers and our own internal analysis. During these meetings, our managers discuss with the company both financial and non-financial factors and routinely seek information linked to the company’s ESG practices, including such things as its governance structure, its engagement with its staff and wider stakeholders and the communities in which it operates as well as its policies in relation to environmental issues. This currently forms part of our general investment research notes rather than being identified specifically as separate ESG factors, but in future we are exploring the ability to identify this as ESG specific research.

In addition to the above, we will be adopting a new phased ESG approach.

Phase 1 will involve establishing available ESG ratings for the fund’s investments from widely available vendor solutions such as Bloomberg and Sustainalytics. This will allow us to calculate a blended ESG rating for the fund but with the understanding that this rating is likely to be materially inaccurate due to the incomplete nature of the data publicly available at present.

Phase 2, will involve us using our own proprietary template to build on the data from Phase 1. This will allow us to build on the data publicly available, verify its accuracy, and add to it in areas we view as key. Due to our close relationship with our investee companies, we will be able to collect data not necessarily as widely available. Where we feel there are gaps, we will be able to continue to work with the companies to improve their approach. This data we collect will then allow us in coming months to refine the ESG rating we give to our funds, and highlight areas where we feel we can focus our efforts to improve.