Environmental, social and governance (ESG) considerations have been an integral part of the Investment Manager’s decisionmaking process for almost 30 years. The Investment Manager believes that ESG factors are financially material and can meaningfully affect a company’s performance. Hence, a company’s ability to sustainably generate returns for investors depends on the management of its environmental impact, its consideration of the interests of society and stakeholders, and on the way it is governed. By putting ESG factors at the heart of its investment process, the Investment Manager aims to generate better outcomes for the Company’s shareholders.
The three factors can be considered as follows:
Environmental factors relate to how a company conducts itself with regard to environmental conservation and sustainability. Types of environmental risks and opportunities include a company’s energy consumption, waste disposal, land development and carbon footprint, among others.
Social factors pertain to a company’s relationship with its employees and vendors. Risks and opportunities can include (but are not limited to) a company’s initiatives on employee health and well-being, and how supplier relationships align with corporate values.
Corporate governance factors can include the corporate decision-making structure, independence of board members, the treatment of minority shareholders, executive compensation and political contributions, among others. At the investment stage, ESG factors and analysis help to frame where best to invest by considering material risks and opportunities alongside other financial metrics. Due diligence can ascertain whether such risks are being adequately managed, and whether the market has understood and priced them accordingly.
The Investment Manager is an active owner, voting at shareholder meetings in a deliberate manner, working with companies to drive positive change, and engaging with policymakers on ESG and stewardship matters. very conscious of the risks emanating from increased ESG challenges. The recent scrutiny by western governments of human rights violations in Xinjiang is an example of the need for continued vigilance regarding the supply chain exposure of investee companies and the fair and humane treatment of workers. Likewise, as climate change pressures mount, the Board continues to monitor, through its Investment Manager, the potential risk that investee companies may fail to keep pace with the appropriate rates of change and adaption.
More details on the Manager’s approach to ESG are set out on pages 109 to 111 of the annual report.