Investment team approaches

Environmental, Social and Governance (ESG) risks are primarily identified by the team’s rigorous company engagement program. The analysts equally weight their own assessment from these engagements with quantitative measures to generate a proprietary ESG score. Analysts incorporate this score together with fundamental analysis in determining an overall stock rating (Strong Buy / Buy / Hold / Sell / Strong Sell). The team believes that ownership and engaging with a company on their ESG performance and disclosures is more effective and higher value-adding than negative screens.

Responsible Investment has been deeply ingrained in the team’s culture for over a decade. ESG considerations are directly embedded into two parts of its investment process. Firstly, the team aims to mitigate ESG risks in the initial screening of its investment universe. Secondly, ESG factors directly feed into its valuation methodology, whereby securities with better ESG scores achieve higher intrinsic valuations and are therefore favoured in its stock selection process. While the team uses third party research, in-house research and direct engagement with companies remains the most important source of reference for ESG information, given the team’s intricate understanding of the global property securities sector.

ESG issues are fundamental to infrastructure companies, given they have significant service obligations and moral accountability to the communities in which they operate. ESG-related criteria has always been fully incorporated into the team’s investment process, and account for 25% of the overall quality score it assigns when considering investment. Company engagement, to encourage ESG best practice for the benefit of investors, is a key part of the team’s investment approach.

To FSSA, ESG and sustainability are not just labels, but a set of values by which they operate. Their investment universe consists of countries which are among the most vulnerable to environmental challenges, suffer from severe inequality, and can be highly susceptible to corruption. For these reasons, since the inception of the team, the focus has been on identifying quality companies and management teams that address these challenges head-on and, as a result, deliver better outcomes for all stakeholders. FSSA invest in companies that contribute meaningfully to sustainable outcomes and where there is the management foresight, technology and ideas to address changing societal and environmental expectations. Companies that do not deliver sustainable value for their customers, employees, suppliers and the larger community are unlikely, in FSSA’s view, to be rewarding long-term investments. It is the responsibility of each analyst to identify ESG opportunities and risk and incorporate into all bottom-up company analysis, valuations, stock selection and engagement.

Igneo Infrastructure Partners’ strategy is to build a portfolio of mature, operating infrastructure assets that can deliver stable returns over the long term for their investors. They have long recognised that managing ESG risks and opportunities is key to protecting and enhancing value. Investment decisions, the asset management approach, and strategic analyses are therefore all examined in the context of ensuring long-term sustainability, and ESG issues are considered at every stage of the investment process. The team has the distinct advantage of being able to engage directly with its portfolio of companies via board representation and workshops with management, giving it the opportunity to set ESG targets, develop initiatives and help drive cultural change.

At the heart of the team’s philosophy is the principle of stewardship – careful, considered and responsible management of its clients’ funds which are articulated in the team’s Hippocratic Oath. The investment team is responsible for all company analysis including ESG, identifying engagement priorities, monitoring and engaging our investments and for making all voting decisions. Sustainability considerations are an integral part of its investment philosophy and stock-picking process. The team’s focus is on evaluating the sustainability risks and opportunities of companies based on fundamental bottom-up research. For Stewart Investors, sustainability must be core to a company’s business model, not an optional extra.

Responsible investment and stewardship principles are important to its approach to investment management and an area of ongoing research. The team’s approach to ESG integration can be grouped into 3 key areas: 1) encourage companies to effectively manage the ESG risks and opportunities facing their businesses through proxy voting and engagement; 2) understand ESG risks in our portfolios; and 3) integrate ESG factors and considerations into our investment processes to enhance performance and/or manage risk.

ESG issues can have a significant bearing on default risk. Historically, poor corporate and regulatory governance have been recognised contributors in most corporate failures. Consequently, ESG risks are identified as part of the team's bottom-up credit research process to help manage default risks in bond portfolios. Its ESG assessment has an important bearing on proprietary internal credit ratings that are assigned to every credit we review, in turn influencing portfolio construction decisions. As well as this bottom-up research, ESG factors are considered as part of its position sizing discipline.

The team has the distinct advantage of being able to engage directly with its portfolio of companies via board representation and/or workshops with management, giving it the opportunity to set ESG targets, develop initiatives and help drive cultural change.