The William Blair Global Equity team’s emphasis on quality inherently incorporates environmental, social, and governance (ESG) considerations, and analysts have always considered ESG factors alongside the more traditional financial factors. But our ESG journey has evolved over the past few years.
The social and environmental elements of ESG adoption are important because if a company is a good corporate citizen to the world, it will eventually be able to create the sustainable value that the core investor, such as William Blair, is looking for. But governance is particularly important to us because we rely on management and the boards to make the right decisions, so governance has always been at the core of our assessment of management quality.
We began to more explicitly integrate ESG considerations into our investment process in 2011, when we became signatories to the Principles for Responsible Investment (PRI), an international network of investors working together to integrate ESG considerations into investment decisions and raise awareness of sustainable investing.
Our research reports have a dedicated section in which analysts must provide information on relevant ESG factors for each company.
Today, our research reports have a dedicated section in which analysts must provide information about relevant ESG factors for each company they are researching and explain how it relates to our investment thesis. Our web-based research platform also integrates ESG commentary from our analysts, including company meeting notes. This enables us to share feedback on our discussions with management and formally track our ESG-related interactions.
We also use third-party ESG rating information, but have faced challenges integrating some of that data given inherent limitations. Most significantly, there is limited coverage of our investment universe, which contains many small-cap companies across developed and emerging markets.
We have also found that a lot of third-party ESG ratings data have short histories with multiple methodology changes, hampering our ability to back-test ESG data for efficacy. Based on this experience, we confirmed the need for proprietary research to help us make more informed decisions based on our investment philosophy and client objectives. So, while we use third-party ESG ratings, they are only one input into our process; our teams’ experience and judgment is critical to our ESG integration effort.
Governance is essential to understanding whether we can get a return of capital from an investment.
To further our efforts to more explicitly integrate ESG factors, we have brought in experts from some of our research partners to train our analysts on materiality, recognizing that certain environmental and social factors are more relevant to specific industries. For example, we would rather our financials analyst spend time researching climate-change implications for an insurance company than for a regional bank.
As part of the materiality awareness initiative, we have been impressed by the industry framework created by the Sustainability Accounting Standards Board (SASB) and are also looking to more explicitly integrate some of that work into our analysis.
Another important element of our ESG integration effort is proxy voting. Clients have told us they want to see more transparency and reporting on our voting activity. In response, we have worked with our proxy advisory firm, ISS, to set up search functionality on our U.S. and European fund websites, and we will continue to look for ways to improve our reporting and offer customization for clients that are seeking more granularity.
Lastly, sustainability is at the heart of William Blair’s corporate values. We have demonstrated this through our extensive community engagement efforts, including the William Blair Foundation’s community partners initiative and our generous matching gifts program. Our commitment to employee satisfaction has been recognized by Pension & Investments’ Best Places to Work in Money Management survey. Our senior management also recognizes that our diversity and inclusion initiatives—including the Women’s Initiative Network and Veteran’s Affinity Network —will be critical to our future success.
GICS Reclassification: Impact on Emerging Market Investors
