Stewardship And ESG Integration
The concept of stewardship is central to our investment philosophy and informs our approach to Responsible Investment. Having this mindset – that our clients have entrusted us with their long-term savings – means that we are, by nature, conservative investors.
We endeavour to make use of all relevant information at hand, including how companies manage environmental, social and governance issues, and only invest where we perceive the management operates the business effectively and in the interests of all stakeholders. Companies that do not look after their customers, employees, suppliers and the larger community are unlikely, in our view, to be rewarding long-term investments.
On the other side of the equation, Responsible Investment also means being responsible owners. When we make an investment, we regard ourselves as buying shares in a real business, with all the rights and responsibilities that this entails. As long-term investors, we engage extensively on ESG matters, particularly where we feel we can add value or can pass on experiences of best practice.
Assessment and monitoring
Our investment approach is heavily focused on research. The bottom-up investment process combines regular company visits with extensive fundamental analysis, seeking to identify high quality companies to invest in for the long term. We typically look for founders and management teams that have high governance standards and whose interests are well-aligned with minority shareholders; and strong franchises that have the ability to deliver sustainable and predictable returns comfortably in excess of the cost of capital. We focus particularly on companies where we believe the market has incorrectly priced future growth potential.
Investment ideas are stimulated by extensive company visits, research trips, industry contacts, team discussions and broker research. Our 17-person investment team conducts more than a thousand direct company meetings a year and we visit the majority of companies at least once before investing.
Company meetings usually take place with senior and operational management and focus on gaining a thorough understanding of the company and its industry – it is during these meetings that we incorporate ESG analysis into our investment process. We do not apply a check box approach as we believe the relevance of specific ESG factors will differ from company to company.
Every company meeting is written up in a meeting note and, if potentially investible, discussed over email and at twice-weekly team meetings. The most promising investment ideas result in a detailed company report, which includes a section on ESG.
To assist in our ESG analysis, we have subscribed to RepRisk, a business intelligence provider that specialises in ESG risk analytics and metrics. The service highlights all relevant ESG issues on our portfolio holdings and serves as a due diligence tool for potential investee companies.
Significant ESG concerns from either our company meetings or from RepRisk are discussed at our team meetings. We take our ownership and engagement responsibilities seriously and engage with companies on material issues and to achieve specific outcomes, namely to ensure good ESG practices and to protect our clients’ capital.
On important issues, we may decide to set out our concerns in a formal letter to the company; if the management response is judged to be inadequate, we may apply a valuation discount, or, in extreme cases we may consider divesting our ownership.
"Companies that do not look after their customers, employees, suppliers and the larger community are unlikely, in our view, to be rewarding long-term investments."
"During 2016 we held 1,446 company meetings across China, Hong Kong, India, Japan, Malaysia, Kenya, Singapore, South Korea, Taiwan, Thailand and Vietnam"