Our mission is to help our clients reach their long-term financial goals. Consistent with that objective, we have an obligation to understand the long-term sustainability of the companies in which we invest. Which is why environmental, social, and governance (ESG) factors are key considerations in our investment approach.
Our ESG philosophy is governed by three core principles—integration, collaboration, and materiality.
We believe environmental, social, and governance factors are critical components of investment decision-making and must be integrated into our investment process. Responsibility for integrating ESG factors lies with our research analysts and portfolio managers.
Integrating ESG factors into the investment process means they are considered in tandem with traditional criteria such as financial, valuation, macroeconomic, industry-related, and other factors when making investment decisions.
This approach improves the potential of the insights that ESG factor analysis can generate. For example, environmental and social factors can inform financial calculations such as forward estimates on revenues or costs or the rate applied in a discounted cash flow model.
To achieve seamless integration, it is imperative that ESG analysis is a core feature of our investment analysts’ and portfolio managers’ wider decision-making toolkit.
Our in-house ESG specialist teams have developed proprietary tools to help identify ESG factors that could impact an investment case. In addition, our dedicated ESG and legislative affairs specialists provide subject matter expertise on ESG issues. They publish investment research on ESG themes and work alongside the analysts and portfolio managers on issues relevant to an investment.
Aligning resources and ensuring collaboration between teams helps our analysts and portfolio managers effectively integrate ESG data into their investment processes.
When assessing ESG factors, we focus on those considered most likely to have a material impact on the performance of the investments in our clients’ portfolios.
To improve our analysis, we mapped materiality for 37 ESG categories and across 158 subindustries.
This approach alerts our analysts and portfolio managers to any company that does not address ESG issues important to its business model. It helps identify ESG risks embedded in an existing or prospective investment, as well as companies with embedded ESG opportunities or tailwinds.
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are those of the authors as of April 17, 2019 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
This information is not in tended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.
Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.
Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.