Portfolio managers / analysts score each issuer by: 1/ the issuer’s current level of performance against global best ESG practice and 2/ the quality of their policies and initiatives designed to improve their ESG performance. The issuer is scored for each of the six questions on a scale of 1 – 5 (very poor to very good). The portfolio manager / analyst explicitly records their view in a dedicated ESG section in a standardised Investment Thesis Report. Their comments are structured around the six questions and conclude with a total ESG score.
Portfolio managers / analysts systematically assess a range of environmental, social and governance factors to form a view on a company’s ESG risks, opportunities and performance. The relevance and materiality of each of these factors varies depending on the company, sector and geography. The ESG risk / opportunity is incorporated through financial estimates and valuation, for example it may mean applying a discount/premium to its fair value. Taken in combination with other portfolio construction drivers, including our overall level of conviction, investment time horizon, liquidity considerations and the investable universe, ESG will directly impact our investment in a stock and its position sizing in the portfolio.