Paris-headquartered asset manager Comgest outlines its ESG approach to investing focusing on the research of quality companies as one of its identity patterns since inception three decades ago.
The attention to environmental and social issues, even in the global asset management industry, is an ongoing trend in consistent growth, that has particularly risen over the past two years. However, there are some who have been looking at this concept – known now as ESG and some years ago as “ethical” investing – going ahead of their time.
Founded in 1985, French equity manager Comgest has been developing an investment strategy focused on the long-term of sustainable growth for some three decades, favouring companies with sound business and financial practices capable of generating sustainable earnings growth.
The firm believes that Environmental, Social and Governance (ESG) factors can be incorporated to its investment and decision-making processes in line with its fiduciary duties and, in 2010, it signed up to the United Nations Principles for Responsible Investment reinforcing its beliefs. One year later, the manager launched a programme aimed at integrating ESG criteria systematically and simultaneously within its investment process.
Comgest has adopted a “Quality-based” ESG integration approach and bases its Responsible Investment Strategy on three pillars: integrate (ESG integrations, exclusions); engage (voting, company dialogue); and promote (Responsible Investment initiatives, client reporting).
The systematic and simultaneous integration of ESG criteria has been applied first to Comgest’s global emerging markets equity strategy and then to the firm’s global equity fund and European equity strategy (roughly 95% of assets under management).
Comgest’s investment philosophy is based on the selection of quality growth stocks that are strengthened by ESG research, which helps the firm to identify companies potentially capable of creating sustainable value and generating positive impacts for their stakeholders.
Arnaud Cosserat, Comgest CEO, underlines: “We put a lot of emphasis on the products and the quality of the research because we feel it is what it differentiates us.
“We are looking to so many factors that could impact. We are ESG native and look for long–term investments.”
According to the French manager, its approach to ESG integration is clearly differentiated from that taken by other asset managers, as it is tailored to the specific characteristics of each company including how it is structured, its business sector, its geographic location, the regulations applicable to its activities, etc.
One of the firm’s strategies taking this approach to ESG is the Comgest’s Global Equity Strategy, whose assets under management surpassed €500m in 2017. It invests in companies operating in developed countries that are not generally at direct risk as a result of their own activity. Nevertheless, the upstream activities on which their operations depend, may be exposed to extreme climatic events including droughts, storms and tsunamis, extreme rainfalls, rising sea levels, and heat stresses.
RISKS OF SCREENING
Sebastien Thevoux-Chabuel (pictured), head of ESG at Comgest, highlights the importance – above all – of screening when venturing into the developing world, while warning that having a long track record in the emerging world does not guarantee companies meeting ESG criteria.
“We have been doing this for 30 years and it has really helped us find opportunities but we still have encounters where companies lie to your face or are blatantly fraudulent. Part of the way we have countered this is having a long list of areas we do not invest in, such as banks and commodities, which means we can concentrate on locating the quality companies from a narrower field.
“But doesn’t this create the problem of having more assets to allocate to a smaller number of stocks, therefore increasing the level of concentration risk? To an extent, yes,” says Thevoux- Chabuel.
“That is a risk, so we have to be conscious of the assets we have to allocate. You need to look at the opportunity set relative to the assets and ensure you do not compromise a quality bias, if that is your emphasis, for allocation purposes.”