ESG at Nutshell
When we first developed the concept for Nutshell, we wanted to do things the right way, to use a sporting analogy, both on an off the pitch. We wanted to apply our investment talents to create a top tier global equity product within an ethical framework, whilst also contributing positively to society with our corporate activities.
On the pitch
We strongly believe in the importance of including Environmental, Social and Governance (ESG) factors in our analysis of each company we are considering for our portfolios. Over a longer horizon however, a company which aims to maximise the potential and minimise the risks within all of its activities, not just its purely financial ones, can be one of the deciding factors which drive us to select it for inclusion in our strategies.
ESG ratings consider:
A company's environmental impact through its energy, pollution and treatment of animals.
Social criteria including treatment of employees and diversity.
Governance which looks at investment and accounting practices, along with any potential conflicts of interest among board members.
Companies with high scoring ESG ratings tend to have higher profit margins and more stable returns.
Externally provided Environmental, Social and Governance (ESG) ratings help us to identify risks and opportunities when selecting a company for our portfolio. Studies have shown that companies with good ESG scores have the characteristics of higher quality companies and fare better in times of crisis. Companies with high scoring ESG ratings tend to have higher profit margins and more stable returns, meaning investing in those companies is not only a good decision ethically, but financially too.
How do we do it?
ESG factors give a more complete picture of a company and its ethos.
We actively exclude companies involved in controversial activities and sectors (such as fossil fuels, mining, weapons, pornography, gambling and tobacco).
We then run our usual financial based factor reduction method to get approx 10,000 global companies down to around 300.
The quantitative part of our research process includes the use of third-party ESG ratings of companies in our investible universe from independent services providers. Companies in the top third of the rankings are scored positively in our process, and conversely companies in the bottom third are scored negatively. Rankings are therefore adjusted changing the probability of gaining portfolio entry, and weightings within the portfolio.
Our in-depth discretionary analysis of a company will also include a further examination of its ESG credentials, which may also result in a discretionary adjustment to its ranking. Including a more micro focus on factors such as GHG/Revenue (Total Greenhouse Gas Emissions/Million Revenue)
Finally we retain the ultimate discretion to still exclude an investment if we still feel uncomfortable. This happened in Oct 2020 with a UK online retailer.
Off the pitch
Our goal is to continually improve our own ESG credentials. Our values focus on integrity, community and charity. These 3 pillars will provide the foundations for what we think is important. At the community level we have recently sponsored HC Knole Park. We have engaged with several charities and are actively looking for further opportunities to help.