8. Best-in-Class Approach Bernard de Halleux
Head of Candriam Switzerland LLC, Candriam Investors Group
Ben Peeters
Senior Investment Specialist SRI, Candriam Investors Group
What Is a Best-in-Class Approach? In contrast to the exclusion approach, whereby certain industries are ruled out for being detrimental to a sustainable economy, the best-in-class approach is more pragmatic and follows a less black-and-white approach: It prioritises best practices of companies, regardless of their respective industry. The best-in-class approach gives investors a holistic view of companies’ commitment to sustainability. For this approach to be effective, the companies must be analysed from both a macro- and micro-economic point of view, meaning that: •• First, investors need to identify which companies are best placed to tackle the major challenges of sustainable development, namely climate change, the over-exploitation of natural resources, demographic changes, health, and well-being. This macro-economic analysis must be performed for every industry because certain industries (e.g., mining) are significantly more exposed to the issue of natural resources, for example, than the banking industry. •• At the same time, investors need to consider micro-economic issues related to how a company manages the interests of its stakeholders (including customers, suppliers, local communities, and employees) from an ESG perspective. This twofold analysis can help identify best practice companies in each industry sector. A best-in-class manager’s aim, therefore, is to invest primarily in companies making the most effort to adhere to ESG criteria, thus prioritising companies displaying exemplary sustainability performance. Best-in-class is intended to promote positive changes—in other words, to encourage companies to improve their conduct and act more responsibly in order to be attractive for ESG-focused investors. The best-in-class approach is used to create portfolios that give precedence to the most sustainable companies in each sector, leading to diversified portfolios representative of the
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