Case study by AMP Capital Investors

Our ESG company research is used by both fixed interest and listed equity teams for a variety of funds, with different investment styles (e.g. quantitative, fundamental, long only, long/short funds) and objectives (e.g. income, ethical, core mandates). It is done as part of a sector review that identifies both a company’s exposure to sector sustainability drivers and the company’s intangible assets.

This analysis provides both quantitative and qualitative information, which along with recent proxy voting analysis is summarised on company ESG summary sheets. These ESG summary sheets are available to all investment analysts and portfolio managers.

ESG summary sheet

The sheet is split into three sections:

1: Quantitative assessment

This summarises a quantitative assessment of the company in four key ESG areas: corporate governance, environment, workplace and community. An overall ESG score is generated based on sector-specific weights of the scores for each of the four areas.

As well as the ESG score, this section contains a sustainability score, which rates the core sustainability issues facing the industry. An overall ES score is calculated based on both the ESG and sustainability scores.

The analysis:

  • provides input into the stock ranking system (discussed further below);
  • identifies key ESG areas of concern;
  • identifies whether the company is investment grade from an ESG perspective for various of our funds;
  • identifies whether the company has exposure to any particular areas we exclude or are concerned about, such as fossil fuels.

2: Corporate governance

This looks in more detail at the concerns driving the corporate governance score and describes how we have voted over recent years, including whether and how we have engaged the company on areas of concern.

3: Qualitative assessment of the company

This describes a qualitative assessment of the company through an ESG SWOT analysis. It forms part of the qualitative overlay that investment analysts use in their company valuations and provides a focus for ESG discussions with the company.

Stock ranking system

As identified above, for each of the fundamental equity funds, the quantitative scores are integrated into the stock ranking system along with other traditional financial/analyst metrics such as momentum, analyst conviction and company target price (figure 2).

Equally important to the ESG summary sheets is the interaction between the ESG team and the investment analysts to discuss them, including:

  • combined morning meetings, including ESG team in weekly portfolio meetings and shared company meetings;
  • weekly ESG-specific meetings;
  • ESG sector report presentations;
  • shared commentary on company results or announcements.

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    A practical guide to ESG integration for equity investing

    September 2016