Delivering financial returns and enhancing the investment process by assessment of material ES&G risks and their impact on Investment value
Building sustainable portfolios by delivering sustainable financial returns based on the assessment of ESG practices
Promoting social and environmental goals and/or/outcomes alongside financial returns
The Allianz Global Investors portfolio managers fully integrate the consideration of Environmental, Social and Governance (ESG) factors into The Merchants Trust research process.
This process ensures:
In our research process, we integrate environmental, social and governance (ESG) factors as well as more traditional operational and financial considerations. By analysing how a business interacts with the environment, treats its employees and deals with customers and suppliers, we can learn valuable insights into its future prospects, and we can assess long term risks, which might not be evident in financial metrics.
But our investment process does not end with purchases of shares. We believe that we have an important duty to engage with the boards and executive management teams of the companies in the portfolio. This is not purely about holding management to account, but also about influencing company strategy and promoting effective governance, to help improve long term performance. Working with investee companies, sometimes in conjunction with other shareholders, we can help engender real change and make a positive difference to society. Allianz Global Investors is a founder member of the Investor Forum which fosters collective engagement with businesses that have diverse shareholder bases.
Live proxy voting disclosure for AllianzGI as a whole is available at https://www.allianzgi.com/en/our-firm/our-esg-approach where you can also find AllianzGI’s dedicated corporate governance and proxy voting guidelines.
We see ESG as a distinctly different philosophy than Socially Responsible Investing (SRI). In an SRI approach, investment universes are explicitly constrained to avoid “bad companies” so that portfolios can be skewed toward “good companies”.
We believe that ESG risk, once properly understood, should be considered in the context of risk/reward, like all other risks considered by the Portfolio Manager. Furthermore, we believe that 3rd party ESG/SRI research is too dependent on limited company disclosures and is often conflicted between assessing actual risk vs social objectives. Therefore, our analysts and portfolio managers challenge 3rd party research; we develop our own conclusions based on material risks.
We believe that such a non-constrained approach to ESG Integration is ideal for proper stewardship. Well-informed portfolio managers can directly engage with the management teams of companies that stand to benefit most from that engagement.
Our portfolio managers, analysts and ESG analysts collectively debate and document material ESG tail risks (the risk of an event occurring that has very low probability but high potential impact) identified for companies.
The portfolio management team explains the risk/reward decision before buying holdings with material ESG tail risks. Portfolio management teams are then subject to a periodic review of these holdings.
Rather than have an Engagement Department, our portfolio managers – having assessed the ESG tail risks – engage directly with company management teams.
All these activities are digital and drive a reporting capability that can be readily reported upon.
IESG enriches investment decision making. Today, most corporates’ shareholder value is explained through intangible assets including ESG factors. Increasing connectivity, social media and more ESG data have made our world more transparent than before; as a result, it’s getting easier to measure.
Companies or sectors found to be abusing the public trust also face much greater legal and regulatory scrutiny and markets are growing aware of this risk.
Forward looking ESG analysis contributes to a better, more holistic and fundamental investment view on corporates and sectors. Portfolio managers can make educated ESG risk/return trade-offs in portfolio decisions while avoiding major ESG issues.
A more sustainable performance of businesses can be achieved through active stewardship.
No. In IESG, we purely look at financially-material ESG factors and stewardship in so much as they would impact performance (for example, a severe issue leading to damaged brand value and consumer trust).
We perform active corporate engagement through all of our investment professionals – not just our ESG research team. We maintain a dialogue with C-Suite and other representatives of a company addressing financially material issues including, but not limited to, ESG. This is intended to improve the sustainable business performance of issuers.
On top of this we also engage through collective engagement initiatives such as, for example, Climate 100+, Sustainable Stock Exchange.
We aim to exercise 100% of our Proxy Voting on Annual General Meetings (AGMs) – see: https://www.allianzgi.com/en/our-firm/our-esg-approach
We have a collaborative process whereby fundamental analysts, portfolio managers and ESG analysts across global locations consistently communicate and engage on ESG issues with companies, providing multiple pressure points on the same topic.
Analysts/portfolio managers continually assess and managers regularly review continuing holding of ‘high’ ESG risk stocks.
We actively monitor ESG issues arising within portfolios and across sectors and markets.
We have a robust stewardship approach whereby managers and analysts are actively involved in proxy voting discussions and company engagements.
We have a strong in-house ESG expertise to support all ESG Integrated strategies.
We have a strong management support of ESG Integration efforts, including personal involvement of the Global and Regional Chief Investment Officers (CIOs).
Most importantly, all our ESG activities – the myriad of interactions that demonstrate true ESG integration among the analysts and portfolio managers working for a large global asset manager – are recorded and can be easily demonstrated.