As an active manager whose heritage is built on rigorous, fundamental analysis, environmental, social, and governance (ESG) considerations have always informed our investment decisions.
Search for Quality
By incorporating ESG factors into our fundamental analysis, we create a more complete picture of the risks and opportunities facing companies today and in the future.
ESG factors have a meaningful impact on a company’s ability to create value over time, so our core investment philosophies and processes are naturally aligned with sustainable investing principles.
A More Holistic View
As the link between off-balance-sheet risk factors and a company’s financial performance has become clear over the past decade, we have realized our need to be even more intentional and systematic in how we integrate ESG factors into our investment process.
Sustainable Value Creation
Across our fundamental equity strategies, we seek to identify companies that can produce excess returns on invested capital and use those returns to control their destinies. We believe that a company’s ability to do this is inextricably linked to ESG factors.
- A+ Rating for Equity Incorporation from the United Nations- Supported Principles for Responsible Investment (PRI)
- U.S. Investor Stewardship Group member
- International Corporate Governance Network member
- U.K. Stewardship Code Signatory
- Japan Stewardship Code Signatory
- Korea Stewardship Code Signatory
- See our proxy voting activity: Mutual Funds | SICAV Funds
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The journey to deeper, more authentic ESG integration at William Blair is an ongoing one—and it’s central to our mission to continually improve as investors.
Stephanie Braming, CFA, Partner
Global Head of Investment Management
ESG Integration in Our Investment Process
We look at ESG factors from a bottom-up perspective, incorporating third-party ratings into our own due diligence—because ratings only tell part of the story.
Beyond Third-Party Ratings
Because they’re based largely on publicly available data, third-party ratings don’t always convey the nuanced factors that affect a company’s ESG profile—or assess how material these factors are to financial performance. Furthermore, the availability of ratings data varies.
Opportunities for Active Managers
Digging deeper to find information that isn’t readily available and scrutinizing that information to determine what it truly means for a company’s prospects is the essence of our fundamental, bottom-up research process.
A More Nuanced Approach
Our research analysts develop long-term relationships with corporate management teams and understand how sustainability aligns with longer-term strategy and financial performance—a more thoughtful, nuanced approach we believe can create significant value for our clients.
ESG CASE STUDY: FOOD AND STAPLES RETAILER
One global food and staples retailer had generated strong corporate performance over the past 20 years, but received the lowest possible third-party ESG rating.
In seeking to identify the drivers of that rating, we found that the largest element was social impact, primarily in terms of food safety.
This is a problem inherent in food production and retailing because such companies have large global supply chains. This company, specifically, had a problem a few years prior when a food poisoning outbreak was linked to shrimp it sourced from Thailand.
After determining this was a temporary rather than structural problem, we looked at how the company responded. In this case, the problem was resolved, and the company took measures to ensure that food safety along its supply chain is well identified and controlled.
Our assessment of ESG quality for the company was thus higher than the third-party rating.
Focus on Materiality
Not all ESG factors are equal in their influence on a company’s financial performance. That’s why our approach to ESG integration begins with determining which ESG factors are material for a given industry.
When exploring industry-specific ESG factors, we reviewed the provisional materiality framework developed by the Sustainability Accounting Standards Board and brought in experts from sustainability-focused research partners to sharpen our analysts’ thinking in terms of materiality assessments.
Then, sector by sector, we held internal discussions to identify which ESG factors were most relevant at the industry level. We would rather our financial analysts spend time researching climate-change implications for an insurance company than for a regional bank, for example.
To ensure material factors become engrained in our research process, analysts address material ESG factors in Summit, our proprietary research platform, and discuss with management teams the challenges and improvements a company has experienced in implementing sustainable practices.
Focusing on materiality allows us to zero in on the factors that have a meaningful impact on corporate performance in each sector.
Blake Pontius, CFA
Director of Sustainable Investing, Global Portfolio Specialist
The ESG-related risks and opportunities companies face are constantly evolving, so we are continually evaluating and improving our efforts to fully integrate ESG factors into our fundamental research.
Proprietary ESG Ratings
Building on our materiality framework, we’re developing a proprietary qualitative ratings system that is fully aligned with our views on the ESG factors that affect company performance by industry.
Enhanced Data-Capturing Tools
We continue to invest in technology that will improve our ability to capture and categorize the increasing data about ESG characteristics in a way that makes it more useful for analysts and portfolio managers.
Aligned Proxy Voting Guidelines
In addition to improving reporting on our proxy voting activity, we’ve implemented voting guidelines that are focused on financial returns and consistent with the objectives of sustainability-minded investors.
As our ESG integration efforts have deepened over the years, so have the insights from our analysts on these topics. Their judgment is critical in our ability to form a more holistic view of corporate risks and opportunities.
David Fording, CFA, Partner
Portfolio Manager, U.S. Growth Equity Team
ESG Blog Posts
Our assessment of the Turkish lira (TRY) has substantially changed in a short period of time. The credibility of the TRY,...
Emerging markets (EM) debt could benefit in 2021 from a favorable combination of factors—such as improving global growth and...
Expectations for earnings growth and return on invested capital (ROIC) have become more favorable outside the United...
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