Capital is a discretionary investment manager with a bottom-up investment process focused on delivering long-term sustainable results. We are independently and privately owned, which has allowed us to develop a specific investment philosophy. “The Capital System” along with our code of ethics and culture of long-term investing, ensures a robust investment process which recognises the relevance of environmental, social and governance (ESG) factors in contributing to long-term sustainable businesses.
The "Capital System" is a unique approach designed to enable our investment professionals to focus on their highest conviction ideas. Our diverse group of portfolio managers and analysts bring complementary investment approaches, experience levels, backgrounds and areas of focus to each fund. Our portfolios are composed of individual managers' and analysts' highest conviction investment ideas. Combining the best independent decisions of experience professionals into one portfolio, results in diversification and creates the potential for super results over time.
ESG is integrated throughout each of the stages of our investment process. We illustrate how this works using the following MADE framework:
Meet: We meet with many decision-makers who could impact the outcome of our investments – not just the CEO. We visit suppliers, regulators, customers and government officials to develop a holistic, long-term perspective – including ESG factors. Our investment team – comprising more than 200 analysts and 100 portfolio managers, and supported by experts on governance, proxy voting and forensic accounting – conducted more than 12,000 face-to-face meetings in 2019.
Analyze: Our investment decisions are driven by extensive in-house assessments of long-term risks and opportunities, with ESG factors being an important consideration. We develop investment convictions through extensive assessment of all available data and information. As the disclosure and availability of ESG data improves, analysts seek to incorporate all material elements into their sector and company coverage. Our investment analysts have an average tenure of eight years at Capital Group, and portfolio managers have an average tenure of 22 years. This underpins our long-term investment horizon and deep knowledge of the firms in which we invest.
Distill: We distill the critical long-term success drivers in every investment case. ESG factors are typically part of the investment thesis, alongside traditional valuation metrics and other assessments. Compensation paid to our investment professionals is heavily influenced by results over one-, three-, five- and eight- year periods, with increasing weight placed on each succeeding measurement period. This incentivizes them to take a long-term investment approach, meaning only the highest conviction ideas make it into our portfolios.
Engage: We seek to achieve progress on key ESG issues through engagement, not exclusion. We maintain a robust dialogue with key decision-makers for our investment holdings. Active stewardship exemplifies our commitment to strong ESG practices – in equities, our proxy committees exercise their respective proxy vote, and in fixed income (since bondholders do not exercise a proxy vote), we focus on the strength of our engagement, and our team benefits from the strong relationships and access to management through their equity counterparts. In 2019, we voted at approximately 2,000 annual and special shareholder meetings, and engaged with over 400 companies specifically on ESG topics.