Our ESG research supplier is performing bi-annually norm-based screenings of our portfolio companies. Our criteria for exclusion (based on international principles and frameworks) and black lists are also narrowing our investment universe ex-ante. Our fundamental analysis of investment opportunities then integrates and weigh in ESG factors into the normal investment decision-making process.
In the governance aspect of the ESG criteria we're looking at the firm from a complete stakeholder perspective. This means that we're taking both the interest of the equity holders but also the firm's creditors. When firms are taking on excessive leverage they might be acting in the interest of equity shareholders but not of their creditors and employees that might not be compensated for the risk of financial distress. This point is of course crucial in the financial analysis prior to making fixed income investments.
These screenings and integration on ESG factors lead us to make better risk-adjusted investment decisions both by mitigating the risk in our investment universe and in our holdings.