Industry Voice: Driving returns through ESG engagement Investment WeekIndustry Voice: Driving returns through ESG engagement Investment WeekIndustry Voice: Driving returns through ESG engagement Investment Week
Impact Investing Forum 2023
London. Dec 05-06, 2023.
Responsible investing is a combination of environmental, social, and governance (‘ESG) considerations. It is an integral part of what we do as investors.
It is also an important part of our fiduciary obligation to clients. It allows us to make a difference and supports our goal of delivering long-term results for clients while contributing to a more sustainable future planet and its inhabitants.
We aim to invest the assets of our clients in quality companies and issuers, which operate sustainably and address the “triple bottom line” of planet, people, and profits. This requires us to consider ESG opportunities, impacts, and risks.
Investors will appreciate the value of ESG
ESG information is a powerful source for non-financial information that can help us identify long-term risk and opportunities that traditional fundamental analysis cannot always capture. ESG data can help us gain a better understanding of businesses and drive returns. ESG data and analysis can be a significant part of our quantitative (or ‘quantamental’), investment process.
ESG is integrated into all stages of our research. Our ESG research evaluates security risks and opportunities at a sector-specific level. We are active investors. We study practices like climate change mitigation, labour relations and regulatory pressures. These could cause unexpected losses and impair cash flow.
The impact of climate change on society and capital markets will continue to be significant. We recognize the importance of climate risk as an ESG risk and seek to invest in companies who are aware of the challenges of climate change, and adjust their operations accordingly.
Engaging with company management is an essential part of integrating ESG in our investment process as long-term investors. Engaging with company management improves our understanding of these businesses and, when combined, allows us to influence the management to make positive changes.
We can encourage companies to adopt best ESG practices, codes, and standards through engagement. Engagement has the ultimate goal of improving long-term performance, reducing risk, and promoting a more sustainable future. Our engagement activities help us meet the UN Principles for Responsible Investment (to which we are a signatory since 2016).
Because we have a long-term perspective, we can maintain and build a dialogue with company managers to improve their ESG performance. This increases the chances that companies will improve their ESG performance over the long-term.
We recognize that companies may be at different stages of maturity, and that some companies might not be penalised according to traditional ESG rating systems. When evaluating a company’s ESG credentials, we take into account the company’s ESG performance (or momentum), as well as its point in time development. Our research suggests that ESG momentum can have a positive impact on investment performance.
Dialog with investees
Because we believe that this is the best way to make a significant impact on ESG performance, our investment team leads our engagement activity. We identify ESG issues that pose a significant long-term business risk or opportunity for our investees and explain how they relate to them. As we establish long-lasting relationships, we engage in constructive dialogue with these companies. We set objectives for companies and, depending upon the complexity of the issue we may set incremental milestones to improve the management of the problem.
This is a way we can help companies improve their ESG credentials which could lead to better long-term returns for investors.
This post was sponsored by Davy Global Fund Management
Without written permission, no part of this article may ever be reproduced. This article was prepared by Davy Global Fund Management using publicly available information, internally generated data and other reliable sources. It is not complete and is intended only for informational purposes. It is not intended to be an invitation or offer to invest. Davy Global Fund Management Limited trades as Davy Global Fund Management. It is regulated and supervised by the Central Bank of Ireland.