Echler Solomon Feng strives to provide superior risk-adjusted returns to its clients and recognizes that the Environmental, Social and Governance (“ESG”) concerns that are central to socially responsible investing (“SRI”) can materially affect investment performance. As such, we consider such factors on a regular basis as part of our investment process in line with our fiduciary responsibility to act in the best financial interests of our clients.
In appraising an existing or potential investment, our investment experts usually aim to:
Based on the preceding analysis, Echler Solomon Feng may try to promote change in some instances or even decline investments in others. We seek to encourage ESG practices through the dealings of our wealth management professionals with the management of existing and potential portfolio companies and their advisors. We aim to ensure that portfolio company management appreciates the monetary consequences of ethical issues and has the benefit of our opinion concerning the approaches being taken across industries, sectors, and companies. Because we are a wealth management company that invests on behalf of clients in a number of asset classes, our potential influence can be extensive.
Nevertheless, our ability to measure and affect ESG issues, in reality, will differ considerably by strategy and investment. Strategies where we have complete access to due diligence and have control allow us to better identify and tackle ESG issues, unlike strategies where we are restricted to publicly available information or have a non-controlling interest. Also, as our principal investment aim is the delivery of outstanding client returns, we may make investments even when ESG concerns are present.
An assessment of a possible investment’s ESG status is not anticipated to comprise a structured procedure or documentation, but more of an overall review of issues that may relate to ESG risk. Investment professionals should use their own discrimination in detecting problems and should feel free to consult with their colleagues and our legal department if they have questions or concerns. Below is a non-exclusive list of appropriate considerations.
Social Concerns. Proper due diligence under the conditions may involve identifying the locations of the company’s operations or customers. Certain jurisdictions may be at higher risk for bribery, money laundering or child labor, or may be subject to sanctions that would prohibit or restrict us from doing business in that jurisdiction. When reasonable, legal counsel or other experts should be used to review legal or regulatory proceedings to ensure that the company maintains proper safeguards to ensure compliance with relevant laws and regulations and to confirm that the company follows fair employment practices.
Governance Concerns. Proper due diligence under the circumstances may involve engaging legal counsel to review documents and accountants to assess financial information.
There may be times where the outcome of our ESG due diligence will lead to a decision not to make the anticipated investment because identified ESG risks significantly impact the investment’s anticipated returns. For example, a recognized environmental liability or pending investigation may present an unacceptable risk of loss. Also, ESG due diligence may disclose unacceptable legal or reputational risk, such as improper employment practices or relationships with governments subject to sanctions or participation in commerce that is known to finance terrorism. Assuming there is no significant ESG-related reason not to invest, the investment professional should still aim to address any identified ESG concerns to the extent that it is realistic.
The amount of ESG to be undertaken after an investment has taken place will generally be driven by the amount of ESG risk calculated before the investment was made. For high and medium-risk investments, to the degree ESG improvements are needed and can be carried out, Echler Solomon Feng should seek to influence ESG behavior through active dialogue with management and advise on operational decisions. Our control investments will give us the most amount of influence, but we may also have the chance to influence decisions if we are a considerable debt holder. To the extent we have an impact, we should seek to encourage management to put in place an action plan to address identified ESG issues, if any, with appropriate targets and timetables for improvement and monitor their portfolio companies as fitting for progress on ESG issues.