The Global Equity - ESG Exclusions strategy is a high-conviction global equity portfolio managed by a stable team of experienced industry specialists with a tried and tested investment philosophy. The strategy is differentiated by its dedicated risk aware portfolio construction process. The RBC Global Equity team integrates material Environmental, Social, and Governance (ESG) factors into its investment decisions, and engages with issuers on material ESG issues. The team’s approach leads to performance that’s driven by stock-specific risk, a source of return that has no persistent correlation to other active return.
The strategy excludes investments in businesses involved in the areas of alcohol, gambling, weapons, adult entertainment, cannabis, tobacco, and issuers based on ESG controversies and on Sustainalytics' ESG Risk Rating.1
- Long-term ownership mind-set with integration of material ESG factors
- Companies assessed through Competitive Dynamics Framework prior to valuation
- Exclude investments in businesses involved in alcohol, gambling, weapons, adult entertainment, cannabis, and tobacco.
- Exclude investments in issuers based on ESG controversies
- Exclude investments in issuers based on Sustainalytics' ESG Risk Rating
- Efficient usage of risk
The intention of the strategy is to provide long-term capital growth by investing primarily in equity securities of companies throughout the world that meet a defined set of ESG-related criteria.
The strategy's investment process begins by screening companies using ESG exclusion criteria that determine its investable universe. RBC Global Asset Management (RBC GAM) has partnered with Sustainalytics to implement the ESG exclusion criteria and to identify issuers for the strategy’s exclusion list.
Based on its data, Sustainalytics prepares an exclusion list of issuers. The list excludes securities of issuers that: (i) derive revenues in excess of certain revenue thresholds from alcohol, gambling, weapons, adult entertainment, cannabis, and tobacco; (ii) are involved in ESG controversies exceeding certain thresholds; or (iii) meet specific relative scoring criteria based on Sustainalytics’ ESG Risk Rating.2
The RBC Global Equity team has been managing client money the same way since our foundation in 2006. The investment team enjoys a very strong, collaborative culture based upon teamwork, transparency, alignment and continuous improvement.
The team believes culture is critical in turning a collection of skilled individuals into a strong team that is committed to making a positive difference for our clients, for investee companies, and for the communities in which we operate.
We believe that over the long-term, investing in great companies at attractive valuations generates value for shareholders that significantly exceeds the return on the average company or the market.
Great businesses can create contingent assets based on extra-financial forms of capital. These are often subtle, qualitative characteristics that can take time to be reflected in company financials - characteristics such as sustainable business practices, engaged employees as well as great relationships with suppliers, customers, and the community. Because these do not immediately accrue to the bottom line and are not reflected in typical financial reporting, we believe the market often underappreciates their impact. However, it is our view that healthy extra-financial capital mitigates risk and creates long-term economic value. We believe that by evaluating the health of extra-financial factors, including ESG, we may be able to reduce risk and uncover alternative sources of alpha, and also achieve a responsible allocation of capital.
Our Competitive Dynamics framework
We use industry analysis to identify great businesses within their competitive set before assessing them using our Competitive Dynamics framework.
Winning business model
Each business in the portfolio has a unique, hard-to-replicate element that gives it a sustainable edge over its competitors. That element varies from industry to industry, which is why we are structured as a team of industry experts.
Market share opportunity
We pay close attention to the industry structure and nature of competition and expect a company with a true edge over competitors to expand or at least maintain its market share.
We believe that a company with a winning business model able to take market share will amplify the amount of value creation if it is exposed to growing end markets.
Management and ESG practices
We believe investing is not simply renting a share for a period, but taking an ownership stake in a business and accepting the responsibility that ownership entails. We want to partner with responsible management teams who can both operate the business effectively on a day-to-day basis and position it strategically over the long term.
In constructing the portfolio, we use our proprietary risk application in order to analyze the portfolio's risk exposures, enabling us to build-in sufficient diversification for us to capture the stock-specific intended risk sources whilst maintaining a focused portfolio of best ideas. By ensuring the individuality of those best ideas, we maximize diversification of unintended risk exposures and avoid bias-creating concentrations. The result is a portfolio where excess returns are dominated by the investment philosophy and stock-specific risk.