Funds Group: Coho Funds
Management Company: Coho Partners, Ltd.
Funds Affected: Coho Relative Value ESG Fund
Principal Sustainable Investment Management Strategy: ESG integration; Engagement
Summary:
Companies are screened to evaluate those prospective portfolio companies based on the promotion and following of Environmental, Social, and Governance best practices. The adviser’s evaluation of a particular company’s adherence to ESG best practices utilizes a proprietary quantitative process complemented with in-depth qualitative analysis. Industry-specific, material ESG value drivers are identified for each company based on the internally derived criteria and the Sustainability Accounting Standards Board (SASB) framework. Material ESG drivers are the most relevant and financially important ESG aspects of the company’s business model. These “drivers” can have a significant short or long term impact on the company’s environmental, social, and governance profile. For example, for healthcare companies a material ESG value driver is improving access to healthcare for more people; however, for a manufacturing company, a material ESG value driver might be revenue derived from environmentally friendly products. The adviser’s methodology determines what it believes the impact each of the drivers has on financial metrics such as revenue, margins and returns. These drivers serve as a tool to quantify a company’s ESG performance. The advisor will review corporate sustainability reports, Carbon Disclosure Project scores, government databases, Bloomberg ESG analytics, Institutional Shareholder Services Inc. (ISS) reports and engagement with company management. The final process incorporates a multi-factor scoring methodology and incorporates metrics from company financial filings, corporate responsibility reports and proxy disclosures.
Specific environmental factors to be evaluated by the adviser include a company’s policy towards climate change, carbon emissions, air/water pollution and energy efficiency. From a social perspective, the adviser reviews company labor standards, community relations and human rights. In terms of governance, the adviser incorporates an analysis of the company’s board composition, long-term sustainability incentives and transparency in disclosure. The adviser analyzes these factors with a preference for positive and improving trends when considering individual stocks for purchase in the portfolio. The adviser may supplement the internal research with data from third-party databases. Each third-party database will have their own custom ESG scoring methodology but some examples of environmental factors tracked by third-party databases include energy intensity, greenhouse gas intensity and water intensity. Examples of social and governance factors tracked by third-party databases include female representation on company boards, board director independence and improving ESG information disclosures.
Both the quantitative and the qualitative processes focus on identifying and tracking the most relevant and/or material ESG factors for each industry and company.
As an important component of its investment strategy, the adviser also meets regularly with management of its portfolio and prospective portfolio companies, as well as their competitors, customers and suppliers. Engagement and proactive dialogue on key ESG issues are also important aspects of the research process.
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