Our approach to managing ESG risk
We manage environmental, social and governance risk as part of our investment risk management framework established by the Board and implemented by our investment management team.
In constructing our portfolios we look for stocks that are currently trading at a discount in relation to our assessment of their long term value. Environmental, social and governance factors are included in our investment team’s assessment of the many factors that can contribute, positively or negatively, to long term value. Such factors specifically include environmental issues such as climate change; carbon emissions; transition risk; exposure to adverse weather, flooding, water shortage; and environmental degradation. Social factors include: compliance with labour laws; exposure to slave labour and human trafficking; and the protection of human rights. Governance factors include: considering the alignment of interests between controlling shareholders, management and us; and the experience, structure, composition and independence of the board. Our assessment of these factors continues during our holding of stocks. It includes daily news flow monitoring and a review of successive annual reports to check for any change in the companies’ own disclosures, issues arising from company sustainability reports, governance changes, and third party ESG ratings. We ask ourselves whether an investment in the company is likely to be, or remain, responsible.
As part of our goal to be responsible investors, our investment team engages proactively and constructively with investee companies during the course of the investment holding period. In engaging with companies we will explain our approach to environmental, social and governance issues. On a case-by-case basis, where we believe that we can have an impact and where our client mandates permit, we will vote shares to protect the interests of our clients and to encourage good business practices. We report to our clients periodically on the material issues on which we have engaged companies and how we have voted their shares. Where engagement leads to unsatisfactory responses that materially and adversely affect the prospects of long-term value generation by the holding, we will disinvest.