For GLA’s Fundamental Equity strategies (57% of total equity), ESG factors are considered as part of our in-depth bottom-up analysis of each company. In particular, we have found that our assessment of management quality is a strong indicator of how well environmental and social risks and opportunities are being managed. We believe that when conducting a fundamental analysis, a company’s ESG risks and performance are material considerations that can affect investment performance.
For GLA's Disciplined Equity (quant) ESG strategies, all companies in the universe are assigned an ESG score; in each sector, the bottom quintile is excluded; the model then constructs a portfolio where the portfolio's ESG score is 10% higher than the benchmark for LargeCap and 15% higher than the benchmark for SMidCap.
GLA's standard Disciplined Equity (quant) strategy involves using linear regression to identify a small number of factors that are the strongest predictors of future returns and rebalancing portfolios every-other week based on updated values. We have found that ESG factors, which are typically updated annually, don't meaningfully impact the bi-weekly future return prediction results and are therefore not weighted heavily in the linear regression model.