Our primary method for incorporating ESG factors is through integration. We believe it is easier to generate out performance for our clients by assessing a company’s prospects for sustainable growth rather than by predicting short-term share price movements.
Management quality and their attitude to a broad range of stakeholders and externalities (social, environmental, cultural and political) are considered as a key part of analysing the five to ten year growth opportunities for a company. Poor ESG performance over this period will impact a company’s reputation with all stakeholders (customers, suppliers, employees, regulators, investors) which can ultimately impact the quality of a company’s earnings.
At Baillie Gifford, we believe that integrating ESG considerations into our research and engagement makes us better investors. As active growth managers with long-term investment horizons and low turnover, we seek companies with sustainable long term growth. ESG factors are naturally aligned with our investment philosophy and time horizon - long-term investments are more likely to be affected by ESG factors. .
It is important to define integration appropriately with respect to the investment process. Baillie Gifford doesn't require systematic and explicit inclusion of predetermined criteria across different investment strategies, instead focusing on bottom up investment analysis to identify sustainable long term growth opportunities. ESG factors are incorporated where relevant to the sector, geography or company. For some companies, there may be highly material ESG issues which merit extensive additional research.
Working with the investment teams the Corporate Governance team are responsible for researching and engaging with the companies we hold on ESG factors. The team sits alongside the investment teams and produces company, sectorial and thematic research for the investment floor.
Screened strategies are predominantly driven by client specific restrictions. Bespoke arrangements are in place in parts of our business - for example one of our investment strategies incorporates screening for all clients invested in the strategy. Where screening applies, data from an external research provider is used to screen companies' performance relative to various ESG factors.