The way governments lead, companies behave, and managers invest is increasingly graded against how they respond to Environmental, Social, and Governance demands. These priorities fit well with DM’s ongoing commitment to corporate citizenship and wealth stewardship, making the incorporation of ESG considerations into our investment process a natural evolution.
Building an ESG Framework
Before establishing DM’s ESG evaluation process, we conducted extensive research, both to assess how the investment industry is currently addressing the subject and to evaluate the availability and quality of relevant data. This work led us to several important conclusions:
- First, though the ESG movement is growing rapidly, it is still relatively young and undeveloped;
- Because of this, data is sparse (especially in Canada) and sometimes contradictory;
- As well, the interpretation of the same information can vary widely across users;
- In investment management, ESG evaluation and decision making are often outsourced to third parties.
Because DM has built a strong tradition of internal investment research and portfolio management, it was important that we also construct a proprietary ESG framework. To offset the shortcomings in data availability and robustness mentioned above, engagement with company management teams, board members, and other relevant parties would comprise an important part of our process.
Dixon Mitchell ESG Process
The integration of ESG analysis into investment management at DM has been executed across three broad pillars:
Engagement — ongoing dialogue with companies to understand and influence their fulfillment of ESG related improvements;
Election — using our proxy voting strength to endorse initiatives that are ESG-positive and reject those which are not;
Allocation — including ESG scoring in our determination of individual position weights within portfolios.
Underlying this work are several DM corporate beliefs:
- A company’s response to ESG factors can reveal a great deal about its culture and often serves as an effective indicator as to how it handles other important issues;
- Greater disclosure of ESG matters is preferred and companies which are forthright in this area tend to be more progressive and better able to adapt to changing conditions;
- Diversity is strength and companies with more diverse teams benefit from a wider range of perspectives in the decision-making process, which most often leads to superior outcomes;
- Firms should respect Indigenous rights and forge trust-based relationships, while providing employment opportunities and community support where possible;
- Governance is vital: superior management and effective oversight are key drivers both to a company’s long term ESG and financial performance
We believe that the work we do in ESG evaluation not only strengthens the qualitative attributes of our portfolio, it also helps to make us better investors.