ESG incorporation strategy (select all that apply)
Describe your organisation’s approach to ESG incorporation and the reasons for choosing the particular strategy/strategies.
LSV’s portfolio decision making process is quantitative and driven by (1) a proprietary model that ranks securities based on fundamental measures of value, past performance and indicators of recent positive changes and (2) a risk control process that controls for residual risk relative to a benchmark. There are a variety of ways in which ESG plays a role in LSV’s quantitative investment process:
- There are a number of signals in LSV’s model that relate to governance.
- LSV can integrate certain ESG constraints into the portfolio construction process for clients that request it.
- LSV may choose not to purchase or increase its investment in particular issuers due to heightened ESG risk, such as news of a major environmental or governance risk related to the company. Because LSV’s process is quantitative, LSV can typically find another highly ranked stock to replace a company that has such ESG risk associated with it.
- LSV offers a commingled investment fund that excludes securities based on certain socially responsible investment considerations.
- LSV can apply negative screens at the portfolio level for clients that request it. Such screens can be applied based on client provided lists or based on certain third-party vendor data subscribed to by LSV.
- Forecasts by equity analysts are factored into LSV’s quantitative model. ESG factors, such as climate change, are considered by some equity analysts, and, therefore, have an effect on portfolio construction.
If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]