ESG research is ingrained in how our Australian equities analysts invest and are a mainstream part of the ongoing research process.
At the stock level our process includes:
- Incorporating identification, analysis and assessment of ESG issues as part of the work undertaken by our analysts on every company we review. We believe integrating this analysis into our research process ensures issues are identified and the implications for our investment more effectively captured in the valuation.
- Incorporating qualitative assessment, which is critical when assessing non-financial risks.
- Identifying ESG issues through extensive company and industry due diligence including a proactive program of engaging company boards, reviewing board structures/compensation guidelines and engaging third party consultants/brokers to undertake bespoke research. ESG issues identified are included in our one page investment thesis produced for each company.
- Excluding investments in companies that we assess ESG issues to be sufficiently material.
- Incorporating ESG issues identified and found not to be threshold issues into our valuation work. They may be included as a specific charge to the cash flows (e.g. a potential environmental liability) or an adjustment to the weighted average cost of capital calculation.
- Including within our policy a requirement that we vote on all resolutions put forward by companies that we invest in. We incorporate the advice of an external research firm when deciding on how to vote, however we are not bound to follow their advice if we believe it is inconsistent with the overall objective of voting in our clients' interests.
- Being committed to including ESG considerations in our brokerage panel structure as a member of ESG Research Australia we are committed to including ESG considerations in our brokerage panel structure.
We strongly believe that our own in-house analysis of ESG issues assists us in identifying independent insights. For example, improving ESG trends can drive investment returns as was the case with GPT in 2009 when the Board was renewed and restructured.
We take our responsibility as active owners seriously. Where ESG issues have been identified we consider it to be an important part of the process to discreetly communicate our concerns to the management or board of the company to seek progress on the issue. We have often found this to be a constructive process which results in more effective outcomes for all shareholders.
We also manage several strategies which screen stocks and industries based on certain exclusionary criteria (e.g. gambling, alcohol, tobacco) at our clients' request.