ESG Integration

Liquid Assets

Overview of process, scoring and exclusions

Our ESG process has four pillars, outlined below:

  • Pillar I: Norm-based screening (Exclusion of: Controversial Weapons, Tobacco producers, Adult Entertainment producers, Thermal Coal exposures, Predatory Lenders, UN non-compliant corporations regarding: human rights, labour, environment and anti-corruption)
  • Pillar II: Exclusionary Screening (Exclusion of Non-covered entities, Worst-in-class entities, and High Carbon Emitters)
  • Pillar III: ESG Risk Control (Aggregate level ESG score and GHG intensity, Fundamental analysis)
  • Pillar IV: Active Ownership (Proxy voting, Direct Engagement, and Collaborative Engagement)

In 2019, Unigestion developed proprietary company and country ESG scores to further integrate ESG criteria into the investment process. The scores provide comprehensive measures of companies’ and countries’ efforts in terms of ESG considerations. We believe that using a quantitative approach provides consistency of analysis across our portfolios as well as transparency in our choices.  Our scoring methodology incorporates the following:

  • A focus on ESG-related risks: Sustainalytics indicators form the basis of our assessment at an industry level.
  • Additional sources: We supplement Sustainalytics’ data with additional sources such as S&P Trucost, as well as with our own assessment. Importantly, this is supported by the results of our corporate engagement effort and our internal assessment can take precedence over external data sources.
  • Regional disparities: We account for varying standards and degrees of maturity between emerging and developed countries when building our scores bottom-up.
  • Sector disparities (Companies only): We recognise differences between sectors and account for different expectations of each when putting together our scores at an industry level.
  • Minimal lag (Companies only): We accommodate the impact of fast evolving controversies as well as their severity.
  • Efforts to improve: We recognise companies’ and countries’ gradual improvements despite low base levels by assessing the “trend” of the ESG score in addition to its absolute level.
  • Engagement activities (Companies only): We incorporate the results of our engagement activities into the ESG score.

ESG Portfolio objectives (scoring and carbon)

In June 2016, we signed the Montréal Carbon Pledge (the Pledge), a collaboration between the UN PRI and investors from around the world. The Pledge has attracted commitment from over 120 asset owners and investment managers with over USD 10 trillion in assets under management. By signing the Pledge, we have committed to measuring and disclosing the GHG intensity of all of our liquid portfolios to help investors better understand, quantify and manage climate change-related impacts, risk and opportunities. Our overall objective is to:

  • Avoid companies or countries that are not covered by ESG analysis
  • Exclude Worst-in-class companies and countries
  • Control the aggregate ESG score and GHG intensity at the portfolio level

We use data from a number of external research providers to complement our internal research resources. Our research partners include:

  • Sustainalytics
  • Sustainability Accounting Standards Board
  • S&P Trucost
  • Transition Pathway Initiative
  • Impaakt

Private Equity

We were an early leader in incorporating responsible investment factors into our private equity investment process. We began research into environmentally and socially responsible private equity investments back in 2007. We believe that integrating ESG criteria into our investment decision making processes is essential to better understanding the risks of our investments. In addition, we believe that promoting higher ESG standards within our portfolio companies and fund managers creates additional value in our investments. Taken together, we believe that ESG has a positive impact on the risk-adjusted performance of our private equity portfolios. ESG considerations are integrated into all of our investment decision-making processes. We invest responsibly to enhance risk-adjusted returns and drive positive change in all of our portfolio companies. More specifically:

1We align the investment themes which guide our investment decisions with the UN Sustainable Development Goals (SDGs)
2We make direct investments that contribute positively to at least one of the 17 SDGs
3We apply exclusion criteria based on the UN Principles for Responsible Investment
4We perform negative screening on the basis of ESG approach, ESG litigations and high carbon emissions
5We measure and monitor companies/GPs against stringent ESG standards using 20 criteria
6We actively engage with management/GPs to drive positive change

ESG in the deal process

Every investment follows a rigorous process ESG is an important focus for many investors today. Tomorrow, it will be an essential due diligence and value creation tool used by all investors. Every one of our private equity investment decisions follows a rigorous process. This includes incorporating specially designed responsible investment processes and tools focusing on engagement with our portfolio companies and transparency to investors into our investment process.