See response in 01.2 for full details of the ESG scoring methodology.
Cardano will work with clients to establish how their investment principles can best be supported by incorporating ESG into our service offering.
As an investment adviser and manager to institutional clients, Cardano’s main focus is on achieving the optimal risk adjusted returns for our clients in line with the mandate provided, and as such, will not ordinarily make moral judgements on the day to day portfolio decisions of asset owners.
Where clients have specific targets or goals in their investment principles, we will work with them to ensure that the manager exposure fully aligns with these principles.
ESG information is considered and weighted as a core part of our manager selection process, across all asset classes. Critically, we do not silo out this assessment to a segregated team but ensure it is carried out by the team responsible for the investment. This ensures (i) robust, consistent and centralised oversight from our various investment committees (across strategies); (ii) integration - we view ESG risk as potentially having material financial impact on risk / return - as such, Environment, Social and Governance factors should be considered by the investment team as part of their overall risk-return assessment, alongside any other source of risk or return (outside of ESG).
Critical to ensuring consistency and redundancy is robust process and, while ESG factors are integrated into decision making throughout the process, we ensure investment decisions follow the below process:
1.Coverage Teams are required to review RI / ESG policies, documentation and online materials for each manager, prior to investment
2. Coverage Teams must send Cardano's bespoke, specific ESG questionnaire to each manager prior to approval for completion and these responses are reviewed by team responsible for the investment
3. Coverage Teams ensure that all managers have a form of on-site (physical, video conference or telephone) to discuss various risk-return drivers (including ESG). This will include identifying specific examples of where and how ESG factors can or have been incorporated into investment decision making around risk or potential returns.
4. Each manager is assigned an ESG rating based on an evaluation of each of the above sources of information. The rating is structured, to seek constancy across portfolios.
The lead analyst on a Coverage Team for the manager is responsible for integrating our view of a manager's ESG credentials when a proposal is made. This culminates in a dedicated ESG section in the investment proposal, itemising the ESG Rating and the rationale for that rating. This ensures accountability, constancy of process and robust debate as members of the investment committee will typically discuss / challenge / request more information around the rating.
By taking this approach, we ensure that ESG is incorporated into the rest of the research considerations, rather than being thought of as something separate. Also, encouraging open challenge to views before investment is made in a manager, helps strengthen our robust ESG rating methodology.