Why ESG?

Businesses are getting increasingly impacted by non-financial factors
All stakeholders (investors, customers, regulators) are getting more sensitive to these issues.
Climate change
Climate change
Sustainable farming/mining
Sustainable farming/mining
Privacy and data security
Privacy and data security
Greater regulatory scrutiny
Greater regulatory scrutiny
Lifestyle changes
Lifestyle changes
Why ESG?
Weak ESG practices increase business risks
ESG factors and the impact on risk
Environmental
Environmental

Firm generating high levels of pollution may suffer from a future tax

Social
Social

Firm that poorly treats its employees or suppliers may be boycotted by the consumers

Governance
Governance

Firm with poor governance heavily fined by the regulator

Low ESG score = Higher risk
Low ESG score = Higher risk
  • Events can have a meaningful impact on the value of the firm
  • Impact is uncertain
  • Timeframe is long and uncertain

ESG measures the sustainability of the company

How companies make money rather than just how much they make
Long term drivers
Inputs
Outcomes
How companies are run
Business model and strategy
The assets they own
How much money they make
Investment performance
Market’s focus
The 3 pillars of ESG
Each pillar captures a number of issues
Environmental

Environmental

Climate Change
Carbon emissions, Product carbon footprint, Energy Efficiency
Natural Resource Use
Water stress, Biodiversity & Land use, Raw material sourcing, Financing Environmental Impact
Waste Management
Toxic Emissions & Waste, Packaging material and waste, Electronic waste
Environmental Opportunities
Opportunities in clean tech, green building, renewable energy
Social

Social

Human capital
Labor management, Health & Safety, Supply chain, Controversial sourcing
Product Safety
Chemical safety, Financial Product Safety, Privacy & Data security, Insuring health
Social Opportunities
Nutrition & Health, Access to communication, health & finance
Governance

Governance

Corporate Governance
Practice & policies, disclosures
Business Ethics
Corruption & instability, Ethics and Fraud, Anti-competitive practices
Government & Public Policy
Financial System instability
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A proprietary, forward-looking and dynamic view of ESG based on qualitative assessment of each company

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Process created with inputs from Schroders - incorporating global best practices

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All companies evaluated using a standardized framework that uses data as well as analyst assessments

ESG Process (Process designed based on Schroders input)
Detailed ESG assessment on stock inclusion in the universe
Detailed ESG assessment on stock inclusion in the universe
Annual stock-level ESG review to capture changes to operating environment
Annual stock-level ESG review to capture changes to operating environment
Review of specific ESG issue faced by any company in the universe
Review of specific ESG issue faced by any company in the universe
Active engagement with management – improved disclosures, proxy voting
Active engagement with management – improved disclosures, proxy voting
What are we looking for?
We look for truly sustainable businesses
  • Strong stakeholder relationships
  • Managed for durable long term growth
  • Strong fundamentals.
We believe investing in these companies
  • Offers a rich source of alpha
  • Can deliver stable returns with lower tail risk
  • Has a positive social impact
Finding these companies is challenging
  • Requires much more than a tick box approach
  • ESG analysis is necessary, but not sufficient
  • Our existing process of looking for long term quality companies should give us an edge

Documents

Schemes pdf
Schemes pdf
Schemes pdf