DDJ employs the integration approach, whereby ESG considerations and risk factors are incorporated into DDJ's fundamental, bottom-up investment process. DDJ endeavors to identify material ESG factors that may contribute to financial downside (in particular, significant event risks that can affect an issuer's creditworthiness), as well as positive ESG factors or improving ESG trends that can create long-term value and assess whether or not market pricing adequately reflects such factors with respect to any proposed investment. If DDJ believes that an identified ESG-related factor will have a material impact on the business that may disproportionately change the risk/reward profile of such investment, DDJ will factor that assessment into its investment decision-making process.
DDJ believes that integrating ESG factors into its investment process in this manner allows for deeper insight into critical risk factors, including exogenous factors not typically exposed in a traditional business analysis model, ultimately resulting in sounder investment decisions on behalf of its clients. Upon request for selected client mandates, DDJ also employs exclusionary screening with respect to certain investments in particular issuers or industries. When ESG considerations are taken into account in the investment decision making process, DDJ compares ESG factors on an industry relative, not absolute, basis.