“A key part of our process is to consider the long-term themes that are driving economies and financial markets over the long term. These typically fall into two main categories; demographic change and technological development. Right now, we would like to consider one which straddles many of our other themes and goes beyond.
“Over the past five years, we have noticed the growing importance of issues which fall under the banner of ESG (Environmental, Social and Governance). For obvious reasons, these issues must always form part of an investment process in order to avoid overpaying for businesses that are heading for inevitable disaster. Currently, ESG has become something much greater than in the past. An increasing number of clients, both individuals but also importantly the large pension funds and sovereign wealth funds, now have to some greater or lesser degree an ESG overlay. At the same time, even funds with no explicit ESG mandate are, through the inevitability of it becoming a factor in their firm’s overall investment procedures, considering ESG on a day-to-day basis.
“It is a truism that what you measure is what you manage. ESG is now something that is widely measured, by a range of organisations and these ‘scores’ are available. Fund managers by their nature will want to score highly on these measures. When looking at two otherwise comparable investments the higher ESG score will inevitably be preferred. Companies will also seek to improve their scores in order to attract further investment.
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