HQAM ESG
At a time when environmental awareness and social responsibility are becoming increasingly important, the way people invest has changed fundamentally. Sustainability is no longer just a buzzword, but a key driver of investment decisions. Part löschen… In this context, Quality investments with a focus on ESG (environmental, social and governance) criteria are becoming increasingly important. At Hérens Quality Asset Management, we believe that for a Quality company* to become a good investment, it must have proper ESG practices, as mismanagement of ESG can have severe implications for the fundamental quality of a company and investment returns. Therefore, ESG criteria are fully integrated in our investment process. Take a look at how we approach ESG:
*Quality companies are those companies that comply with Hérens Quality Asset Management quantitative financial criteria (e.g., conservative financing, high capital profitability, stable profits and other factors) and qualitative criteria (e.g., strong market position, proven business model, led by experienced management teams and other factors).
ESG INTEGRATION - SUSTAINABILITY
The path to a sustainable portfolio
Since 2010, we have been integrating ESG analysis into our investment process.
Before we invest in a company, our analysts perform a detailed ESG research, following strictly defined criteria. These include quantitative analysis of ESG performance indicators and qualitative analysis of a company’s ESG policies, strategy and the associated sustainability risks.
While our analysis is guided by widely adopted materiality frameworks (e.g., SASB), we understand that each business is different and faces unique sustainability-related challenges and opportunities. Therefore, rather than adopting a one-size-fits-all approach, our ESG analysis focuses on things that truly matter for a particular business, and our analysts assess each company on a case-by-case basis, considering not only specifics of its industry but also take into consideration home country and business model.
Within our ESG integration approach, we aim to understand how sustainability-related risks may affect a company’s financial performance, and how a company affects the environment and society with its operations. Additionally, the systematic and thorough analysis of a company’s management has been an important part of our Quality investment approach from the very beginning.
While some aspects may not have an immediate negative impact on a company’s financial performance, we believe that Quality companies should always strive to conduct their business in an ethical and responsible manner, as sustainable governance can have a positive long-lasting effect on a company’s financial performance, as illustrated below. It is important for companies to take a long-term view when it comes to ESG, as not all sustainability-focused decisions will be immediately translating into better financial results and may even affect short-term profitability. However, we believe that sooner or later, unsustainable business practices will backfire and eventually undermine a company’s operations. For example, a company may achieve higher profit margins by underpaying its employees, but in the long run, it will not only struggle to attract new talent, but also lose valuable people, which can disrupt internal operations and affect development plans or customer relationships.
In addition, we focus not only on a company’s current sustainability performance, but also on how it got there. We also consider it a must that sustainability is integrated throughout a company’s operations and is a part of its business plan and overall strategy.
Sustainability as part of the investment process
Our goal is to identify quality companies: those with a strong financial base, solid balance sheets and conservative financing. We look for companies that deploy their capital profitably in segments and markets, where they have a competitive advantage. In addition, we consider a consistent and competent management team as well as a responsible corporate strategy as decisive characteristics for quality companies. To this end, our research department team evaluates various ESG factors as part of our systematic analysis process.
EXCLUSIONS
Following exclusions are applied to all strategies and products offered by Hérens Quality Asset Management:
- Non-compliance with Labor Organizations Conventions and/or the United Nations Global Compact Principles. The compliance is monitored via screening against involvement in controversies in the MSCI ESG database.
- More than 5% of revenue derived from following industries:
- Tobacco
- Alcohol
- Arms and Weapons
- Thermal coal
- Gambling
- Adult Entertainment
Revenue exposure data is monitored via MSCI ESG database. Hérens Quality Asset Management can provide clients with additional exclusion filters following individual preferences as well as implement client-specific negative lists or selection criteria.
REPORTING
Client Reporting
Our ESG integration process is fully transparent, and, upon request, we provide the necessary information to understand the sustainability profile of our Quality portfolios.
A detailed overview of individual
portfolio ESG profiles and their performance is also readily available to clients upon request. This includes a variety of environmental, social, and governance indicators, in addition to overall ESG ratings.