It refers to investment in specific themes to address ESG issues such as clean tech (renewable energy), waste and water management, sustainable forestry, and agriculture, health products and education. It is based on the trends centred on social, industrial, and demographic. E.g., Alternative Energy themed fund, Air or Water themed fund.Active Ownership
It refers to engaging the companies on issues pertaining to ESG and exercising ownership rights and voicing opinion for change. Upon mapping the material financial factors, performing investment analysis can support in the process of company engagement and/or inform voting decisions. This additional information gathered helps in influencing outcomes pertaining to ESG issues. Activism or activist investing is not nearly the same as active ownership approach which uses confrontation measures in public domain but can influence through discreet approach and dialogue.
The active ownership actions are listed below:
- Voting at Shareholder meeting
- Filing complaints with regulatory/authority
- Active Dialogue with company representatives
- Raising questions during Q&A at the general meeting for shareholders.
- Issuing press releases
- Positioning to gain board representation
It refers to systematically integrating ESG factors in the valuation model based on the risk and opportunities relevant to the industry. It does not mean selecting the best in an industry or sector based on the ESG or neither excluded as in exclusionary screening strategy. For Anglo American, a mining company, RobecoSAM adjusted the operating cost by 400 bps which reduced margins by 80bps due to inadequacies in management of occupational health and safety at its platinum mining sites and issues related to labour wages and strikes, which reduced the target price by 7%. Additionally, they increased (adjusted) the weighted average cost of capital (discount rate) by 50 bps which reduced the target price by 12%. Cumulative reduction in the target price by 19%.
Sustainability Accounting and Standard Board (SASB) has categorised the above-mentioned material ESG factors based on the industry. It is difficult to know the factors that are relevant to each industry, therefore SASB has simplified by identifying (materiality map) the financially material issues that are likely to impact the financial and operating performance of a company and are important from investors point of view(98)
.(98)Sustainability Accounting and Standard Board https://www.sasb.org/standards/materiality-map/