MAIN MENU

#WellSaid

Our investment professionals share and challenge each other’s views, creating a diverse marketplace of ideas for the Wellington Blog.

I’ve always liked this quote from the movie The Incredibles and finally have a work-related context in which to use it. From an environmental, social, and governance (ESG) investment standpoint, its logical extension is: “When everyone’s super, no one will be. And valuations of similar companies should converge.”

What this means is that, as ESG issues become more mainstream across industries, the “uniqueness” that differentiates individual companies may begin to dim over time, which could result in more uniformity among companies in the eyes of shareholders, customers, and…

SUSTAINABILITY
Andrew Corry
Andrew Corry
CFA
Equity Portfolio Manager
Boston

How to incorporate environmental, social, and governance (ESG) research and ratings into fundamental security analysis can be a vexing question for investors. The connection of ESG issues to equity returns isn’t always clear and disconnects can persist for companies that screen well on fundamentals but poorly on ESG. As ESG-focused investors with extensive fundamental investing experience, here are some ways we help our colleagues think about applying ESG to their investment process.

Yolanda’s perspectives

Look for red flags. I see ESG as a cost-of-equity scaler. The more material ESG red flags there are, the more concerns the market may have about a company’s financial risks. These concerns can reduce the likelihood for strong fundamental performance to translate reliably into strong share-price performance over the long term. Conversely, the more a company’s ESG profile improves and concerns abate, the more the stock’s…

 

SUSTAINABILITY
Yolanda Courtines
Yolanda Courtines
CFA
Equity Portfolio Manager
London
Mark Mandel
Mark Mandel
CFA
Equity Portfolio Manager
Boston
Load More

Archive

Earlier this summer, I virtually participated in an institutional conference with about 100 other asset managers and prominent asset owners from the US, Canada, Europe, Australia, and New Zealand. It was well worth my time. Here are my main takeaways, along with some personal observations on the post-COVID-19 industry landscape.

1. Economic assumptions and forecasts were more dire than I’ve seen internally. While Chinese gross domestic product (GDP) is expected to reach pre-COVID levels this year, the US may not get there until mid-2021 and likely only on the strength of “50% of the economy in steep recovery,” according to one conference participant. The other half of the US economy may..

CORONAVIRUS
THEMES

ARCHIVED

Mark Mandel
Mark Mandel
CFA
Equity Portfolio Manager
Boston

In our view, engagement with portfolio companies can enhance positive social and environmental impact and create lasting value for shareholders. We see material environmental, social, and governance (ESG) issues as strategic business issues that can affect a company’s financial performance, competitiveness, and sustainability. The better impact investors understand material ESG issues, the more informed their investment decisions.

Hands-on approach

We believe in taking a hands-on approach to engagement, meeting in person with boards and management teams, writing letters, or hosting calls multiple times each year. Further, we think productive engagements should aim for…

SUSTAINABILITY

ARCHIVED

Tara Stilwell
Tara Stilwell
CFA
Equity Portfolio Manager
Boston
Louise Kooy-Henckel
Louise Kooy-Henckel
Associate Director of Investment Products and Strategies
London

We believe good corporate stewardship and positive environmental, social, and governance (ESG) behavior can help create business resiliency, enhance competitive advantages, and sustain economic growth. Through this lens, climate change is a growing point of friction. Can carbon-intensive companies that are otherwise models of stewardship — with quality management teams that consider all stakeholders, track records of capital allocation that add long-term value, and engaged independent boards — measure up for portfolios like ours, which aim to balance financial returns and responsibility? Increasingly, our answer is no. If a business is categorically negative for the environment (E), it is difficult for positive S and G behaviors to outweigh the growing financial challenges and other risks to the company.

Central to our investment philosophy is belief in a flywheel effect: Companies that reinvest returns to improve competitive position and strengthen ties to key stakeholders may ultimately…

SUSTAINABILITY

ARCHIVED

Mark Mandel
Mark Mandel
CFA
Equity Portfolio Manager
Boston
Yolanda Courtines
Yolanda Courtines
CFA
Equity Portfolio Manager
London

When market participants lack, discount, or ignore relevant data, the resulting information gaps create asset mispricing that active managers may exploit to generate alpha for clients. We believe sustainable investing is a particularly inefficient market segment, and in a recent series, we address several key inefficiencies and explain how we believe investors can take advantage of them. First up:

Inefficiency #1: The market’s focus on short-term growth

Over the past 40 years, the average equity holding period has declined from three years to less than one (Figure 1). While many market participants focus on quarterly earnings guidance, profit margins, or growth rates, sustainable investors can explore longer-term, sustainable growth opportunities.

Figure 1

Short-termism has taken hold

SUSTAINABILITY

ARCHIVED

Wendy Cromwell
Wendy Cromwell
CFA
Vice Chair, Director of Sustainable Investment, and Portfolio Manager
Boston
Load More
Share on linkedin
Share on email

Categories

Trending posts

DISCLOSURES

Wellington Management Company LLP (WMC) is an independently owned investment adviser registered with the US Securities and Exchange Commission (SEC). WMC is also registered with the US Commodity Futures Trading Commission (CFTC) as a commodity trading advisor (CTA) and serves as a CTA to certain clients including registered commodity pools and their operators. WMC provides commodity trading advice to all other clients in reliance on exemptions from CTA registration. WMC, along with its affiliates (collectively, Wellington Management), provides investment management and investment advisory services to institutions around the world. Located in Boston, Massachusetts, Wellington Management also has offices in Chicago, Illinois; Radnor, Pennsylvania; San Francisco, California; Beijing; Frankfurt; Hong Kong; London; Luxembourg; Singapore; Sydney; Tokyo; Toronto; and Zurich. ■ This material is prepared for, and authorized for internal use by, designated institutional and professional investors and their consultants or for such other use as may be authorized by Wellington Management. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients.

In Canada, this material is provided by Wellington Management Canada ULC, a British Columbia unlimited liability company registered in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, and Saskatchewan in the categories of Portfolio Manager and Exempt Market Dealer. ■ In Europe (ex. Austria, Germany and Switzerland), this material is provided by Wellington Management International Limited (WMIL), a firm authorized and regulated by the Financial Conduct Authority (FCA) in the UK. This material is directed only at persons (Relevant Persons) who are classified as eligible counterparties or professional clients under the rules of the FCA. This material must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment service to which this material relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. ■ In Austria and Germany, this material is provided by Wellington Management Europe GmbH, which is authorized and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin). This material is directed only at persons (Relevant Persons) who are classified as eligible counterparties or professional clients under the German Securities Trading Act. This material does not constitute investment advice, a solicitation to invest in financial instruments or information recommending or suggesting an investment strategy within the meaning of Section 85 of the German Securities Trading Act (Wertpapierhandelsgesetz). ■ In Hong Kong, this material is provided to you by Wellington Management Hong Kong Limited (WM Hong Kong), a corporation licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), and Type 9 (asset management) regulated activities, on the basis that you are a Professional Investor as defined in the Securities and Futures Ordinance. By accepting this material you acknowledge and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available to any person. ■ In Singapore, this material is provided for your use only by Wellington Management Singapore Pte Ltd (WM Singapore) (Registration Number 201415544E). WM Singapore is regulated by the Monetary Authority of Singapore under a Capital Markets Services Licence to conduct fund management activities and is an exempt financial adviser. By accepting this material you represent that you are a non-retail investor and that you will not copy, distribute or otherwise make this material available to any person. ■ In Australia, Wellington Management Australia Pty Ltd (WM Australia) (ABN 19 167 091 090) has authorized the issue of this material for use solely by wholesale clients (as defined in the Corporations Act 2001). By accepting this material, you acknowledge and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available to any person. Wellington Management Company LLP is exempt from the requirement to hold an Australian financial services licence (AFSL) under the Corporations Act 2001 in respect of financial services provided to wholesale clients in Australia, subject to certain conditions. Financial services provided by Wellington Management Company LLP are regulated by the SEC under the laws and regulatory requirements of the United States, which are different from the laws applying in Australia. ■ In Japan, Wellington Management Japan Pte Ltd (WM Japan) (Registration Number 199504987R) has been registered as a Financial Instruments Firm with registered number: Director General of Kanto Local Finance Bureau (Kin-Sho) Number 428. WM Japan is a member of the Japan Investment Advisers Association (JIAA), the Investment Trusts Association, Japan (ITA) and the Type II Financial Instruments Firms Association (T2FIFA). ■ WMIL, WM Hong Kong, WM Japan, and WM Singapore are also registered as investment advisers with the SEC; however, they will comply with the substantive provisions of the US Investment Advisers Act only with respect to their US clients.

View full disclosures
Wellington Management logo

Contact Us

*Mandatory Field

Contact Us

*Mandatory Field