Definition of the expression ’Strong Sustainability Practices’
Didner & Gerge Global has a long-term view for all investments. The main focus is to find well- managed companies with sustainable business models.
Didner & Gerge Global has a long-term view for all investments. The main focus is to find well- managed companies with sustainable business models. In our mind, that is the most likely road to success and survival as a long-only equity fund manager. A minimum threshold of 70% of the fund’s AUM always need to be invested in holdings that meet the definition of having strong sustainability practices.
The key is in the definition
As always, the key is in the definition. Our definition cover what the company produces, how they practice and performs with respect to different aspects of its stakeholders.
A sustainable business model to us is one that has a great chance of being stronger in a decade’s time; that means durability and solving client-demands is of utmost essence.
Or in a very short wording – Being Intentional About Sustainability.
Sustainability needs to be incorporated into corporate strategies and reflected in organizational business goals. This means making this a priority in every aspect of organizational operations.
As with any other business initiative, you need to make a plan of action and assign accountability. Hold people accountable and measure the results.
In order for a business to be able to achieve that, it needs to govern the business with integrity, treat employees and customers well, use resources efficiently and run a business that creates value over time. All of this of course requires robust financials to be able to keep investing in products and the company´s ecosystem even during harsher times (which all businesses go through). All businesses that thrive over long time periods need an implicit or explicit social license to operate, which is a mental framework we apply in our analysis.
In our own opinion, Didner & Gerge Global looks at every potential investment through a much wider sustainability lens than how third party ESG-ratings work, which cover only a portion of the above. Hence, while we track these ratings and do follow up on certain issue they highlight if deemed important, it is not used as an inclusion- or exclusion-factor.
Final assessment
Didner & Gerge Global conducts a in depth analysis of each current and potential holding. The overall assessment is conducted continuously, and is updated at least once yearly, or, in advance of any potential new investment. Some of the KPIs are updated on a monthly or quarterly basis.
The analysis gathers information from multiple sources. Some of these are described briefly on the following pages. An internal qualitative approach and analysis is also included in the process. After the external and internal analysis has been conducted, we summarize information in the Environmental, Social, and Governance segments in our In-house analysis – called the Pocket Guide. Also included in this section is the sustainability angle of the business model, the degree of EU Taxonomy alignment, as well as potential awards received within the area as well as potential negative aspects regarding the above-mentioned factors.
The importance of E, S, G, and the degree of EU Taxonomy alignment can have different weights depending on what kind of company is being analyzed, but the overall assessment must be strong for each individual (potential) holding.
Other factors considered in the sustainability due diligence process include documentation of different external ESG metrics as well if the company is signatory of Science Based Targets, UN Global Compact, etc.
Ultimately, the final assessment is conducted in a 16-field checklist. To be defined as a company with strong sustainability practices, the company must fulfill a clear majority of applicable factors considered.
The checklist
The checklist includes minimum threshold factors (i.e. the company needs to pass the norm-based exclusion screening), as well as neutral factors (i.e. pass the ‘no harm’ criteria– the company should not have a negative sustainability angle by nature of its operations (internal qualitative assessment and third-party scores) and finally pass the overall assessment regarding E, S, G and other key sustainability factors via an in-house analysis with qualitative assessment (aided by knowledge from external sources). These include factors like a) having an undisputable and positive environmental focus (backed up by the nature of its operations, low emissions, or verified third-party scores. b) having an undisputable and positive social focus. or c) having an undisputable and positive governance focus. If a company cannot pass the clear majority of the above-mentioned factors, the company is viewed to lack strong sustainability practices.
More on sustainability analysis, rankings and in-house analysis
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Sustainability Assessment
Didner & Gerge Global has integrated sustainability in the selection process since the fund´s inception in 2011.
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Sustainability Rankings
The award-winning business and society magazine Corporate Knights has a research division which produces corporate rankings, research reports and financial product ratings based on corporate sustainability performance.
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UN Global Compact & UN Sustainable Development Goals
The United Nations' plan for achieving a better future for all — laying out a path over the next 15 years to end extreme poverty, fight inequality and injustice, and protect our planet.
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Science Based Targets
Targets are considered ‘science-based’ if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement.
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The Sustainability Taxonomy
The sustainability taxonomy is the EU’s single most important piece of ESG regulation. As such, it is an important part of our research into a company´s sustainability profile.
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Other external sources
Other external sources that we use to define strong sustainability practices.
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In-house analysis
A key aspect in how we view strong sustainability practices is to ‘invest ESG positively’. Our in-house analysis include many factors and areas that are explained in more detail here.
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