In 2016, the Firm began implementing its Corporate Governance Checklist Questionnaire, which yields a numeric rating of various criteria and now covers almost all companies owned by the Firm’s equity and fixed income strategies. The checklist is currently composed of 100+ questions covering the following topics:
− Shareholders and ownership structure
− Board composition, independence, and diversity
− Related-party transactions
− Disclosure and financial transparency
The quantitative results of this questionnaire are then incorporated into bottom-up reports, which directly feed into the company's internal credit rating system, and accordingly strengthen or weaken each individual investment case. Understanding the relationship between ESG factors and financial materiality, the Firm is formalizing the inclusion of environmental and social risk factors that may become relevant within the forecasting period.
In 2019, the Firm updated its valuation guidelines to incorporate proprietary research that shows a clear correlation between governance scores and cost of capital. In accordance with these guidelines, analysts are required to consult a proprietary database in order to factor governance score differentials as an additional input in an issuers discount rate based on how the issuer fares against industry peers.