Reasons to invest
1ESG Investing: How Covid-19 accelerated the social awakening, by Federated Hermes, published November 2018
Climate change is a universal challenge and capital markets have a key role to play in turning ambition into action on climate change. We believe those companies that are ahead of the trend should flourish.
Why Global Equity Low Carbon?
By avoiding companies that are unwilling or unable to mitigate their contributions to climate change, favouring those that are managing their impact on the climate – and engaging with companies to create credible climate strategies – we are able to allocate capital towards lower carbon intensive assets, thereby supporting the transition to a greener world.
The team has conducted pioneering research linking ESG to investment performance, which has led to the creation of leading-edge proprietary tools, such as the QESG Score and ESG Dashboard. This research also underscores our belief that companies less exposed to ESG risks will outperform over the long term, while those that are improving their ESG profile can unlock significant shareholder value. To learn more about our approach to ESG integration, click here.
The Strategy is aimed/aims to generated consistent returns and to outperform its benchmark in any market environment. Consistency is achieved by investing in a diverse range of companies with strong, long-term fundamentals and ESG characteristics. This helps defend against swings in style and means clients are not required to time their entry point to benefit from a particular factor tailwind.
How we invest
This approach allows the team to hold stocks over the long-term; it is only long-term thinking that enables a company to fulfil its potential to benefit society and the planet, its employees and the local communities in which it operates.
We use a systematic approach, driven by our Alpha Model, which seeks to identify companies with an attractive combination of fundamental characteristics and ESG behaviours. This is combined with a disciplined subjective analysis to identify potential weaknesses not captured by the model, including analysis of environmental, social and governance factors, using the ESG Dashboard. A company’s environmental attributes are assessed using industry-specific KPIs, as well as a climate change risk framework, controversies and the UN SDGs. We also use a wide range of metrics from a broad list of data sources including the Science-Based Targets Initiative, Transition Pathway Initiative, CDP, MSCI, Trucost, Sustainalytics and, crucially, insights from our internal EOS team.
In addition to the exclusion of companies exposed to fossil fuels and high carbon intensity, the portfolio avoids companies exposed to unsustainable activities, such as:
- The manufacture and distribution of controversial weapons and cluster munitions.
- Adult Entertainment
- Breach of UN Global Compact Principles
The result is a diversified portfolio that has a significantly lower carbon footprint than the benchmark and is tilted towards companies with a good or improving ESG profile.
We assess macro risks and stress-test the portfolio, using MultiFRAME. We also perform a subjective ‘sense check’ at the company level to validate the data, assess unquantifiable factors and interrogate ESG before constructing the final portfolio.
Stewardship is an essential part of our investment approach. In managing the portfolio, we seek constructive and positive dialogues with each company’s board and management team, encouraging them to mitigate any negative impacts and to adopt practices, initiatives and strategies that deliver tangible and positive outcomes.
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