Our Approach to ESG Investing
(Environmental, Social, and Governance)
At Segall Bryant & Hamill, we are bottom-up investors, building portfolios on a security-by-security basis. When analyzing securities, we focus primarily on fundamental factors, including ESG factors for each company we research. The integration of ESG into this process is critical to our understanding of the risk/reward potential of all securities we consider for purchase on behalf of our clients.
We understand that a company’s relationships with its stakeholders—including customers, suppliers, employees, communities, governments, creditors, shareholders, and the broader environment—can meaningfully impact its future investment value.
Therefore, our research teams have integrated environmental, social and governance factors into the investment process to ensure our investment conclusions incorporate the risks that unsustainable business practices can have on a company and its stakeholders. Although we consider ESG factors to be material to a company’s future investment prospects, they are considered in the context of the issuer’s underlying business model, operating fundamentals, and market position. As part of our investment process, this review is accompanied by thorough valuation analysis.
SBH is a signatory of the United Nations’ Principles for Responsible Investment (PRI), the world’s leading proponent of responsible investing. Signing the internationally recognized PRI reflects our commitment to responsible investment within the global community, seeking companies that exhibit positive stewardship in their environmental, social, and corporate governance practices. Senior management at SBH is highly involved in the firm’s ESG efforts and we have an internal ESG committee tasked with developing best practices across the organization.
INTEGRATION OF ESG INTO THE INVESTMENT PROCESS
At SBH, we analyze a variety of metrics when assessing ESG exposures in our investment process. These include, but are not limited to, the following:
- Environmental—Energy efficiency, pollution and waste, climate change, and biodiversity impacts.
- Social—Human capital management, product liability, community relations, and sourcing practices.
- Governance—Board composition, executive compensation, accounting practices, and shareholder rights.
Our equity portfolios are built through a proprietary research process based on deep quantitative and qualitative research on our portfolio companies, peers, and industry conditions. Our goal is to invest in securities that are trading at a discount to what we believe to be the intrinsic value of a company’s equity, one that offers us an attractive risk-reward profile and downside protection.
Through our research process, we develop an understanding of a company’s ESG practices and risks, and we track and measure industry-relevant ESG metrics for each company. We create an investment thesis for each company we consider for purchase that embeds the implications of a company’s ESG risks and/or competitive advantages. The thesis for each company we purchase is regularly reviewed. We often start with governance as a primary factor when analyzing a company, as we believe unless the management team/board of directors is aware and willing to take the ESG framework into account, the entire exercise of ESG is one lacking effect or importance. We believe the experience and tenure of our analysts and portfolio managers give us an advantage in determining the materiality of ESG factors.
We believe that fixed income portfolios should be high quality and tailored to meet the liquidity, income, and capital preservation objectives of each of our clients. We seek to take advantage of inefficiencies in the fixed income market by identifying overlooked issues that offer a measurable return advantage. Our goal is to invest in high quality securities that we believe will perform well over market cycles and offer downside protection.
Our team primarily integrates ESG analysis as a risk-mitigation tool. Accordingly, all analysts and portfolio managers consider ESG factors and the potential sensitivity of these factors during the investment process and integrate these into their multi-dimensional financial analysis. The investment process begins with an initial screen of the investment universe to identify issues that may be overlooked by other managers. As part of this screening, analysts develop an ESG score metric for each company that is factored into its quality ranking. ESG factors are also integrated into the team’s proprietary financial models, which serve to deepen the team’s understanding of company-specific information. Prior to purchase, each investment thesis includes a rationale based on our ESG factor scores.
Segall Bryant & Hamill does not provide accounting, legal or tax advice. This information has been prepared solely for informational purposes and is not intended to provide or should not be relied upon for accounting, legal, tax or investment advice.
To learn more about how ESG is integrated into SBH’s investment process, contact us.