A company's practices and policies set in place to limit their negative impact on the environment. These include Emissions, Waste, and Carbon Impact. The ability to manage the risk of its line of business and perform in a manner protective of the environment will bolster a company's ESG rating.
A company's policies towards employees, customers, and the community. The policies range from Data Privacy and Security to Supply Chain Human Rights to the Quality and Safety of the company's products. This factor helps identify the companies aware of their impact and are doing their part in building and maintaining a healthy society.
The management team's ability to execute said practices and policies. This factor works to identify the companies whose corporate boards keep the shareholders' best interests in mind, executing efficiently and without controversy.
Sustainable Investing refers to the practice of investing in businesses that both pursue financial returns and promote positive societal and environmental change. In recent years, the topic of sustainability has gained extreme traction in the financial industry.
Sustainable Investing (also known as "ESG investing") considers the Environmental, Social, and Governance ("ESG") factors or risks that affect a company.
The unfortunate truth of sustainable investing is that to this date, its definition remains vague and subjective. There are at least six recognized agencies that provide ESG company ratings. When comparing their ratings of the same company, we find they are highly inconsistent with each other. Therefore, it would not be prudent to rely entirely on third-party ESG ratings for investment decisions.
Our approach takes into account Bloomberg's ESG Disclosure ratings as well as Sustainalytics' (Morningstar). We pay attention to these ratings but ultimately rely on our research and analysis to identify sustainable companies. Regardless of any third-party ratings, a large part of our due diligence focuses on a company's management integrity and core values.