For the Australian equity portfolios managed by Pendal, the impact of ESG on our portfolio construction is primarily a function of the bottom up stock selection investment process employed by the team, combined with a recognition of specific opportunities and risks that have ESG elements, driving the Portfolio Manager’s decision on how much of the stock to own in the portfolio.
Portfolio construction - some of our strategies systematically look at the impact that ESG factors are having at the overall portfolio level whilst for our mainstream strategies the Portfolio Manager will on occasion look at the composition of the portfolio from an ESG perspective.
We recognise that ESG factors can have a significant influence on the value placed on a company and its ability to drive shareholder returns on a long term basis.
We believe ESG is relevant to a portfolio or investment decision if one or more of the following apply:
1. ESG is a predictor of future returns and cash flows.
2. ESG analysis can flag longer term risks that investment analysis may not factored into the long term discount rate.
3. ESG analysis indicates that there are regulatory or ethical issues which should be considered.