PCM generally seeks to invest in fundamentally-sound and well managed businesses, and in our investment analysis we seek to consider all factors in our review of companies and their equity investment opportunities, including ESG matters.
PCM believes that ESG monitoring, engagements and improvements reduce respective investment risks and provide for better returns. PCM also believes that good corporate governance, high environmental standards, responsible social policies and respective adequate risk-management are indicative of efficient and sustainable management. And, on the contrary, cases or risks of governance abuses, environmental or social disregard are signals of inefficient and non-sustainable management and should be taken into consideration during investment process and as a subject for engagements.
Hence, we do consider ESG factors, alongside other factors, in the investment decision. Our financial models, for example, incorporate material effects of any industrial accidents/downtimes including staff costs, current and expected environmental regulations, environmental fines, environmental capital expenditure, social costs related to local communities, etc. PCM has on numerous occasions sold or held off investment due to ESG-related concerns.
Also, if PCM encounters a target company with no appropriate ESG disclosure or performance this is raised by PCM and discussed during its engagement with the company. For example, insufficient ESG transparency, potential or realized governance abuses, environmental or social accidents, or negative developments of relative environmental data are treated as negative events and PCM will engage with a company and endeavour to challenge its management whenever possible to determine why it has occurred, what has been done to redress or improve the situation and what will be done to minimise such events in the future.
With the exception of cluster munition companies (which are indefinitely excluded from our investment universe) and relevant sanctioned entities (excluded for the period that those sanctions are applicable), PCM does not seek to exclude any potential investment. Our core belief is that positive results for ESG work come from active involvement in companies rather than from exclusion of certain investments.