Integration into the Investment Process
We are active owners, carefully analyzing ESG issues for all pipeline and portfolio ideas, playing both offense and defense.
On offense, we identify ideas where an ESG issue contributes to a company’s sustainable growth or competitive moat. Positive management, Board, compensation, or other Governance changes have played a role in many of our portfolio ideas – often changes informed by Jackson Square’s proactive engagement. On defense, we ensure that a company’s cost of capital reflects all material ESG issues – both positive and negative – in our Intrinsic Business Value (“IBV”) framework.
Analysis of ESG factors can heavily influence our IBV estimate for a company, both in our assessment of a company’s sustainable free cash flow growth rate, and in the cost of capital we apply. We believe that this integration of ESG analysis into our quantitative IBV-setting exercise is a simple and effective way to incorporate these issues into our investment process.
Jackson Square ensures a consistent approach to evaluating ESG factors through bottoms-up and top-down mechanisms. For each new investment idea, our analysts complete a rigorous, consistent, bottoms-up set of analyses on material ESG issues, explaining how ESG factors play a role in our assessment of a company’s IBV and laying out key ESG engagement priorities (if any) to push with the company. From a top-down perspective, Jackson Square’s ESG Working Group – composed of several members of the investment and broader team – meets monthly to review all new investment ideas, update best practices, and discuss macro or other ESG issues which could affect existing holdings (e.g., new regulations, UNPRI Sustainable Development Goals, etc). We believe that this combined approach leads to a consistent integration of our ESG principles into the investment process.
Since its founding, Jackson Square has consistently engaged with management and stakeholders of many portfolio companies to enhance shareholder value. We are not activists, but we are active owners engaging where we believe we can have impact and drive positive change. These engagements have different aims tailored to each situation, but key examples of where we have had influence include:
- advocating for improved capital allocation,
- supporting changes in management or in a management team’s compensation structure,
- shifting a company’s core strategic focus, and
- optimizing investor communication, disclosures, and target setting.
ESG factors are core to our view of a company’s IBV, so we believe that helping a company enhance its performance against these factors can create significant value. To that end, we proactively identify ESG-linked engagement priorities – when relevant and material – for all new investment ideas as part of our investment process. We draw on these sets of priorities during all management touchpoints. And we use the full range of tools at our disposal to influence Boards and management teams over time. Jackson Square will continue to practice active ownership on ESG issues, engaging with a subset of our portfolio companies on an annual basis to improve practices.