Our risk assessment uses a premortem process, whereby analysts imaginatively project themselves 5 years into the future and assume that the investment has been a failure, and earnings have not grown over that period.
The investment team looks at all possible risks including environmental, social and governance risks that could have brought about this outcome and work backwards to today to assess their likelihood and materiality.
The assessment of those risks will drive a forward-looking risk assessment which the team uses to estimate the threshold cost of equity for each potential investment. As such all risks, including ESG risks, are factored in when looking at the required level of return above the cost of equity.