ESG integration into the investment process refers to an investment approach that clearly acknowledges and incorporates material ESG risk factors into the investment process and security underwriting. The goal is not to restrict specific stocks, countries, or industries, but rather to ensure that our invested managers are aware of, and consider in their investment decision making, any potential ESG risks or opportunities within their coverage universe.
ABS encourages and works closely with all of our invested managers to develop and maintain an ESG policy that provides the ABS investment team sufficient confidence that any potential ESG-related risks and opportunities are being properly assessed. ESG analysis is a key consideration in our investment research process, with the main pillars outlined below:
ESG in the Due Diligence Process
ABS takes a three-track approach by incorporating ESG due diligence in into our qualitative research process, quantitative research process, and operational due diligence process.
The Qualitative Research Team is responsible for all new manager research and for ongoing monitoring of all invested managers. Because ESG awareness is a core consideration in our investment underwriting, the Qualitative Research Team has primary responsibility for understanding, documenting, and monitoring the ESG policies of all the managers with which we speak. The Qualitative Analysts track these interactions using ESG-specific features built directly into our proprietary internal research system (the ABSolute).
The Quantitative Research Team provides an additional layer of support by monitoring the underlying holdings of all SMA accounts and of all fund investments where position-level transparency is available. If securities are held that appear to be at odds with a manager’s written ESG policy, that security can be brought to the manager’s attention and used as an engagement opportunity.
The Operational Due Diligence team provides an additional layer of support to the Qualitative Team’s efforts through a series of Responsible Investment questions that are included in our mandatory annual Due Diligence Questionnaire. The responses are compared to the Qualitative Team’s assessment and any discrepancies or nuances are discussed with the manager.
ABS’ investment philosophy emphasizes finding the most talented asset managers around the world. Our focus on local and niche managers means that ABS is often a significant investor in the earliest stages of a manager’s track record. As a result, we are able to use our influence to engage with all potential and invested managers to encourage them to adopt an official ESG policy in the event that no policy already exists. Not only does ABS benefit by ensuring all of our managers are cognizant of ESG risks, but we are also able to positively influence the proliferation ESG consciousness across the broader investment management community.