We incorporate ESG factors into the investment process of our equity portfolios to create more sustainable portfolios while aiming to increase the expected risk-adjusted returns.
1.5.1.1. Non-thematic equity portfolios
We integrate ESG factors into the investment process of our sustainable equity funds in five main steps:
- Identification of material ESG factors
First, the investment manager uses materiality frameworks to identify those ESG factors that are relevant to the investment strategy. Materiality frameworks are concepts that help to identify sustainability-related issues and opportunities that are likely to affect the financial condition or operating performance of companies within an industry. Material factors are furthermore assessed based on the fund’s sector and geographical exposure.
Second, the investment manager prioritizes the material factors that are most relevant to the subsequent investment decisions based on the portfolio’s current market exposure. The investment manager reassesses the prioritization regularly to account for changes in the materiality framework, portfolio exposure, or market conditions. Consequently, material ESG factors may change over time.
- ESG security analysis
Based on the identified material ESG factors, the investment manager performs security, sector, and regional research across the portfolio’s investment universe. The investment manager makes use of ESG ratings from state-of-the-art service providers and combines them with Credit Suisse Asset Management’s proprietary analyses and information. These may include ESG-related news, ESG ratings and scores, ESG-related controversies, and ESG trends.
The ESG data are fully integrated in our portfolio management software, Aladdin by BlackRock. More than 100 ESG data points are accessible to the users. Additionally, investment managers have full access to all ESG-related analyses provided by third party ESG data providers such as MSCI (e.g. ESG-related company reports). The Credit Suisse Asset Management ESG team may offer additional support, where needed, and advise on access to other ESG data providers such as RepRisk.
The outcome of the ESG analysis of individual securities, combined with financial research, permits the investment manager to make ESG-adjusted risk/return assessments. This enables the investment manager to compare securities on an ESG-adjusted basis and to evaluate whether to keep certain securities in the portfolio or to sell them during the security selection and portfolio implementation stage. The ESG security analysis is updated periodically.
- Security selection and portfolio implementation
Based on the identified material ESG factors and the ESG-adjusted security analysis, the investment manager constructs a portfolio in accordance with the portfolio’s investment process and principles. The ESG-adjusted security analysis combined with portfolio construction considerations is used to determine appropriate portfolio weights that reflect the ESG-adjusted risk/return profile of the analyzed securities.
- Portfolio monitoring
The investment manager monitors the ESG factors periodically through the portfolio management system to detect significant changes in the ESG factors of the underlying securities. He or she regularly reassesses the portfolio, taking into consideration financial and ESG metrics, and consequently decides whether to increase or decrease positions in the portfolio.
- Targeted engagement
Apart from regular engagement with investee companies and proxy voting carried out by the ESG team through its active ownership activities, the investment manager may engage with companies individually in the event of serious ESG-related concerns.
1.5.1.2. Thematic equity portfolios
With their pure-play investment approach, our Thematic Equity funds focus on specific, narrowly defined themes when defining their investment universe. The Thematic Equity funds that include environmental or social aspects in their investment process integrate ESG factors in the same way as described in section 1.5.1.1. There are, however, additional elements that are considered during the investment process of these funds.
- Identification of material ESG factors
The investment manager prioritizes the ESG factors that are most relevant to the subsequent investment decisions based on the portfolio’s current market exposure and its thematic investment objective.
- ESG security analysis, security selection, and portfolio implementation
The research process may make use of dedicated ESG questionnaires with potential follow-up engagements with investee companies. This additional research is usually carried out when no public ESG data are available. Insights gained in this way are then used in the process of selecting securities that fit the theme of the investment product. The main tool for security selection and portfolio implementation is the fundamental scorecard that determines the weight of each holding. ESG is one of the five pillars that are assessed using the fundamental scorecard.
- Portfolio monitoring
In addition to the standard ESG exclusions that apply to all our sustainable investment products, there are additional criteria that are used for our Thematic Equity funds (see section 1.4.1). Issuers that have been excluded on the basis of those additional criteria are coded into our automated trade compliance systems. As a result, the investment manager will receive a warning when attempting to trade an excluded stock.
- Targeted engagement
Exercising active ownership through engaging in a direct dialogue with investee companies’ management teams is performed with the ultimate goal of improving the ESG ratings of an investment and helping the companies enhance their understanding of ESG issues and the impact of their products or services on people and the planet.
Certain Thematic Equity strategies invest with a sustainability objective, as detailed in the respective product documentation.
Further information about the investment process of our Thematic Equity strategies can be provided on request by relationship managers.