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Environmental, Social, and Governance (ESG) Factors

In our view, companies that effectively address Environmental, Social and Governance (ESG) issues tend to be more attractive long-term investments. ESG factors have, therefore, always been a component of our fundamental investment analysis, and by taking an active approach to integrating ESG into our decision-making process, we are improving risk management for our clients’ portfolios. ESG is one of many fundamental risk factors that we evaluate in determining the quality and risk-return trade off of a security, helping us fully understand all the risks inherent in a company.

In 2017, we became a signatory to the UN Principles for Responsible Investment (UNPRI, currently known as the PRI), as part of our ongoing commitment to enhancing our ESG research process, including engaging with company management to encourage and educate them on best practices and policies. The PRI is an international network of investors who contribute to the development of a more sustainable global financial system by incorporating ESG factors into their investment decision-making and ownership practices. 

We have an active, three-pronged approach towards ESG:

Engage: Our investment teams actively engage with companies by having open and challenging discussions with management teams and by exercising voting rights. We identify and raise ESG incidents with companies that we follow as these issues emerge. We believe that our bias towards long-term ownership of our investments and our dialogue/engagement with management, and occasionally boards, is core to the principles of ESG. 

Monitor: We incorporate ESG considerations into our comprehensive and proprietary Investment Grade Rating (IGR) checklist that we prepare when considering a security for purchase and for sizing our portfolio holdings. We continue to monitor the identified issues and engage with the management teams of our portfolio companies about ESG factors, policies and procedures related to their business at least annually (or as issues emerge).

Report: We disclose guidelines annually according to the PRI. We also report all of our ESG engagement activities to our clients on a quarterly basis, including a summary of our firm’s proxy voting activities against management (if any).

We look at the following ESG factors in our analysis:

Environmental Social Governance
  • Environmental regulations
  • Environmental asset liabilities such as asset decommissioning
  • Emissions
  • Use of renewables
  • Recycling efforts
  • Water conservation
  • Energy efficiency
  • Worker health and safety
  • Workforce composition, including diversity and part-time and/or unionized workers
  • Remuneration and benefits
  • Training programs
  • Health and safety policies
  • Board structure, including quality of representation, diversity and independence
  • Executive compensation

While our ESG analysis is an important part of our investment decision-making process, it does not necessarily eliminate a company from being considered for a portfolio. We can have more impact and influence on a company’s policies and procedures as equity owners and debt holders than if we exclude them from the portfolio. However, for those clients that have specific restrictions and requirements, we do manage customized portfolios that exclude certain companies for ESG reasons.

In 2020, FGP was recognized with summary scores of A across all modules in the assessment report released by the PRI. Read more about these results below.

                          

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