ESG Analysis and Integration

After becoming a signatory to UN PRI in 2015, QUAERO CAPITAL embarked on a thorough review of our integration of ESG analysis within our investment process.

Integrating ESG Analysis Across Investment Strategies

We took steps to structure our ESG evaluation of each company held in portfolios, to better document it through a proprietary template and to share intelligence across the organisation. There are few external rating agencies that cover the investment universe of many of our investment strategies, with coverage generally decreasing with market cap. Where there is coverage, we’ve been disappointed with the quality of work behind it.

Our decision not to use an external ESG resource is not just due to low coverage, as we also question the benefit of outsourcing this fundamentally important input in the investment process outside of a quantitative strategy. We are, however, keen to substantiate our approach with external data, and we do this with a « Portfolio check » from Conser Invest (Sustainable Investment experts based in Geneva), who collect data from across the market to build a ‘consensus view’ on our portfolios. This ensures we avoid provider bias. The data we receive with the portfolio checks helps us identify where we thi nk differently from the market.

Our ESG analysis is completed by the ESG team with the support of the individual fund investment teams, where the company knowledge is greatest. With companies reporting more and more datapoints, we’re adapting our approach to focus on material factors with the benefit of the specialist perspective of our ESG analysts.

This approach ensures we focus time and energy on the factors that are financially most material to the company’s financial success. Our analysis follows a proprietary structure, enabling comparison, highlighting areas of risk, and raising the need to start dialogue with management.

We structure our evaluation according to how clear their policies connect with their actions, and whether they are sufficient for the business they’re in. We ask:

  • What policies do they have that manage the identified ESG risks?
  • What specific initiatives do they outline that serve to help the organisation fulfil set policies?
  • What management systems are in place to monitor and manage the success of initiatives?
  • Who will take responsibility for delivery of policy and initiatives, and do they have enough seniority?

The Double Objective of Environmental Analysis

We look at companies through the lens of ESG criteria two ways: the impact the company is having on the environment, and the impact the environment could have on the company. Both can lead to significant business risks.

We look to understand how the company is making efforts to reduce their footprint and impact on their environments – what are their policies, what initiatives do they have underway, how are they measuring their progress and who is responsible for delivery?

We also wish to understand how the climate is affecting their business. Climate change and its secondary effects will impact many industries and companies. A good example of this is agricultural businesses affected by areas suffering long-term drought tied to climate change.