ESG analysis is fully integrated into TT's investment process from the inception of any stock analysis. Indeed just as the Investment Case template expects commentary on valuation assumptions and risks, so it is also mandatory to comment on Environmental, Social and Governance headwinds or tailwinds in stock selection. With an explicit focus on companies with persistently high quality attributes, the process also has a natural bias away from those with a poor ESG history. With focused and concentrated portfolio construction, combined with low turnover, every stock chosen must be of the highest conviction. If there is doubt about the company, either at the financial level (deliverability of earnings, balance sheet quality, for example) or at the ESG level (questions of labour exploitation, or unattractive management structure, for example), then there is no need to own any specific stock, and the team will focus their attention elsewhere.
Our monitoring process flows from our ESG risk monitor which identifies areas for further ESG investigation and analysis. These flagged issues are referred to the Analyst in question for further work. We do not formally ‘measure’ the consequence of engagement activities but subjectively assess whether a company has taken steps to mitigate or remove the concerns that we have. Where the company has not, and we believe these concerns are a significant detriment to the outlook to shareholder value, we may reduce our holding. When improvement in ESG factors is a specific catalyst in the company’s Investment Case we formally monitor the results of our engagement as part of our review of the investment.
We would not formally notify clients of eny evolvement of our ESG screening criteria, however; we would notfiy the clietn upon and request for information.