We believe that ESG is simply part of good business practice and we look very closely at the regard a company's management team has for it. We incorporate ESG principles early on, with manufacturers of tobacco and weapons being screened from our investable universe.
The main areas that we cover within our research process include:
Environment - sustainability management practices and carbon emission policies
Social - this depends on the company but will include occupational health and safety standards, and labour practices
Governance - board structure, operational risk management, and directors and executive remuneration.
In the same way that there will be negative economic consequences for those businesses that cut corners around ESG issues, we also believe that there are positive economic benefits for those businesses that are proactive and progressive when it comes to ESG.
This is why we incorporate ESG issues into the discount rate that we use to value businesses. These must be considered when looking at a company's risk management framework, given the impact they may have to the value of the company over time.
Not having a strong focus on ESG is, in our view, simply bad business, which leads to poor outcomes for investors.