Asian Equity (Ex. Japan)

Philosophy

We believe that Asian markets are inefficient and individual stocks are prone to periodic mispricing. Our investment process is driven by the belief that active management, based on thorough fundamental research of companies, can take advantage of this inefficiency to deliver strong returns over the longer term — if this process is consistently executed in a team-based environment. All stocks in each portfolio reflect our conviction in the need to find sustainability of returns and/or positive fundamental change, and we consider environmental, social, and governance (ESG) factors to be an important part of this evaluation process.

ESG Implementation

Acceptable ESG is a prerequisite for investment in a company but it is not the sole determinant. Other considerations include the sustainability of a company's returns/profitability, fundamental positive changes, financial indicators, quality of management, and valuation. However, where negative ESG issues are identified in the investment process, with little or no evidence that corrective measures are being taken, the company is excluded from investment consideration regardless of its strength in other areas.

The Asian Equity (ex. Japan) team incorporates ESG across various stages of the investment process

Idea Generation: Screening flags, third-party data support

We assess ESG risks of companies during the stock selection process. All known companies with negative ESG issues are flagged in the research database and are considered ineligible for investment unless the company has shown tangible efforts to improve. Analysts continually evaluate companies, and these firms' behaviour towards ESG issues are updated in the database as appropriate. We also use third party data providers' scoring and analytics tools.

Fundamental Analysis: Integrated research process and relative scoring on ESG factors

A key part of our fundamental analysis toolkit is the integration of ESG materiality assessments. This helps us to build the case for the sustainability of earnings and risk mitigation, and it allows us to identify industries or companies undergoing positive fundamental change. ESG is not the only determining factor of our investments but it can be an important consideration. ESG assessment — corporate governance factors, in particular — has been an integral part of our investment process since its inception over 10 years ago.

We actively research and score companies based on ESG factors relative to their peer group. We believe that a company's corporate governance framework must promote timely, accurate, and transparent disclosure of important information, giving a complete picture of the company's performance and prospects. An assessment of the beneficial ownership track record here is key across all investments.

Portfolio Construction & Risk Management: Sell Discipline

The rating of a company can be downgraded to SELL1 or SELL2 for negative ESG developments, depending on the severity of the issue. Our independent risk team also performs checks on low ESG ranked and downgraded stocks.

Investment Management