The Evolution Of Our Approach To ESG Factors
At Whitefoord, we believe that Environmental, Social and Governance (ESG) issues can influence investment risk and return and, therefore, incorporate ESG risk considerations into our fundamental investment analysis. Since the mid-2000s, we have explicitly seen the attraction of the E (environmental) component in ESG investing and, in recent times this has become a more significant focus across our Investment Strategies. Through our research approach, we strive to understand the long-term sustainability of a company’s business model and the factors that could cause it to change. The long-term sustainability of a company is linked to good governance (G), and the tone from the top of the organisation set by the Board and Senior Management. Executive remuneration and Board structure can be indicators of good governance. Flowing from good governance is how a company addresses its social responsibility (S). Indicators are how firms deal with their people, their suppliers (e.g. prompt payment to smaller local businesses) and their support for their local community.
The Investment Structure and research Focus
The primary responsibility for determining the impact of ESG factors on Clients’ investments lies with our Investment Division, and specifically the Research Team who conduct stock analysis.
Our approach is driven by the following principles:
We believe companies, investors and Governments all have a role to play in improving corporate disclosures and strengthening the sustainability of business practices over time.
Our Research Team is responsible for assessing the full range of factors likely to have a meaningful impact on a company’s performance.
3. Fundamental Research
We believe ESG analysis and engagement are most effective when led by experienced investors who know the company well and are best positioned to evaluate these considerations in the appropriate context.
We believe our responsibilities as diligent investors do not cease with the decision to purchase a security. We continue to focus on the management of companies whilst we hold them.
We focus on the ESG factors that Whitefoord consider most likely to have a material impact on the performance of the companies across our Investment Strategies.
How Do We Integrate ESG Issues?
When we assess the suitability of a company for our Investment Strategies, we consider a variety of factors. Broadly defined, these factors can include the company’s stewardship, accountability, transparency, leadership quality, strategy and execution, the competitive dynamics in its industry, its management of its staff and its efficient use of resources. It should be noted that these are core competencies that predate an explicit ESG focus, which now brings further refinement.
A company with a poor ESG record could come under pressure from customers, regulators or investors, which would ultimately affect its profitability and share price. It could also indicate that management has too much focus on the short-term, which may not be in the long-term best interests of shareholders. Understanding where a company stands on ESG matters is, therefore, a key component in assessing the long-term sustainability of its business, alongside the other factors that are considered when analysing the prospects of a company.
The evaluation of ESG factors is highly dependent on the country, industry, company and management we are analysing. Therefore, the particular issues considered vary with each investment. Some specific examples of the broad range of ESG issues we may consider in our investment research process are:
Responsibility for incorporating ESG risks into investment decisions is increasingly embedded across the Investment Division. We have a Research Team who are experts in their fields. Their responsibilities include producing detailed company and industry analysis. In order to supplement our Research Team’s assessment of ESG risk factors, we use an accepted ESG scoring system, provided by third party sources, that allows us to rank sectors and individual companies, to help understand the ESG issues most relevant to the investment under consideration.
Striving For Superior Returns For Our Clients
All our Investment Strategies are managed with an emphasis on trying to provide long-term reward, commensurate with acceptable risk. By assessing and understanding the range of ESG risks, together with many other investment criteria, we believe we will be better informed in the pursuit of this goal to deliver consistent, superior long-term investment returns for Clients.