9.1. Enhancing the Investment Process through ESG Integration Philip Ammann, CFA
Global Thematic Equities Analyst, Vontobel Asset Management
Vontobel mtx has been applying a proprietary framework for ESG assessments since 2010 within one of their asset management teams. This framework is integrated into the investment process for developed and emerging markets with the aim of improving the risk/return profile of investments. The ESG integration approach is characterised by these key points: •• ESG is a fundamental part of the investment process undertaken by the financial analysts: The investment process is based on four pillars: above-average return on invested capital (ROIC), strong industry positioning, intrinsic value, and effectively addressing ESG issues. Companies have to fulfil all of the requirements defined within these four pillars in order to qualify for investment. •• ESG analysis is fully integrated into company evaluations: The same team of analysts undertakes both ESG and financial evaluations. This enables the analysts to reach decisions based on a holistic understanding of each company. Furthermore, they can adjust their financial models according to risks identified in their ESG evaluations. •• Development of proprietary Minimum Standard Frameworks: These sector-specific Minimum Standard Frameworks (MSF) highlight and weigh a broad range of company-specific ESG aspects in a comprehensive ESG evaluation. The financial analysts synthesise their own analysis with the qualitative input from external providers. In addition, they evaluate forward-looking trends, such as ESG initiatives that companies have in the pipeline. •• Independent ESG audit validates analysis: When selecting an ESG integration approach, an independent audit is key. An ESG professional, not otherwise involved in the investment process, ensures that the MSF scores are a true reflection of a company’s ESG performance. The ESG professional’s assessment is not influenced by an otherwise potentially strong investment case.
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