We believe that ESG is very important
The acronym ESG stands for Environmental, Social & Governance. It means that factors such as energy, climate influence, reuse of resources, health, safety and good corporate governance are taken into account in the selection and management of portfolio companies.
A number of recent studies have shown that companies that perform well on environmental, social and governance structure, earn better shareholder results in the longer term. (For example the Eurosif SRI study of 2014). This is substantiated by the positive correlation between ESG ratings and the risk adjusted returns of the assets. Furthermore, we believe that in the coming times, sustainability of business models will become even more significant in determining the long term market performance of companies.
We only invest in ethically responsible companies
Our investment in ethically responsible companies is based on a four phase procedure.
Negative screening and Sector exclusions
To start with, we exclude certain sectors on ethical and mission based requirements from our investible universe to ensure our investment universe is comprised of socially and environmentally sustainable companies. Examples of excluded sectors are weapons, tobacco, etc.
Best in class approach
In the second phase, we consider the publicly available ESG disclosure scores. This is a best in class approach that helps us formulate a picture of ESG performance of the company.
Firm level analysis
In the next step we deep dive into a rigorous firm level analysis or a norm based screening, where we evaluate the performance of the company on a set of 30 ESG parameters, to evaluate the ESG performance of the company with respect to its peers and on a historical level.
In the final phase, we also engage in a suggestive role to improve the ESG performance of the companies that we invest in.