European Equities: What does ESG mean to us?

Our focus as active fund managers is on finding mispriced stocks. We are open to buying companies whose qualities and future potential are not properly reflected in their share prices. Equally, we look for companies whose willingness and efforts to change have yet to be recognised by the market. Correctly anticipating change for the good and the scope for market perceptions to catch up with reality can generate strong investment returns. The key is identifying the issues and focusing on the path to improvement.

The same principles apply to how we see ESG: many of its key aims and principles are well aligned with our long-term investment focus and engagement with the companies we own. Investment opportunities can arise from market dislocation related to ESG, as they can from other share price drivers. For example, a better investment outcome and greater progress towards achieving ESG’s basic aims may well be achieved by backing companies which have improving ESG momentum.

We do not automatically exclude companies where we see ESG risks. We try to be forward looking rather than backward looking. If there are material ESG risks, then we take those into consideration as part of our overall analysis and in determining the risk/ reward for a particular stock.

Getting to the right answer involves more than just focusing on information provided by the ESG rating agencies. They provide some useful insights and information as to what the key ESG issues are and how they are viewed today. We will consider such research but the proprietary research and analysis we carry out, to try to anticipate how a company’s ESG strategy evolves in the future, will be more important to us.

Our overall investment process composes of five major components. In this note we go through in detail how ESG is integrated in our process.

Download the full paper to learn more.