Our approach to sustainability and the integration of ESG factors into our team’s investment process has evolved and improved since the inception of our first Asia and Japan strategies in April 2014. As we have broadened our product range to include a China strategy* in 2018 we have consistently applied this approach across all strategies managed from our Hong Kong office.
Investing in the Asian region provides many opportunities to interact with promising companies with long runways of structural growth, often underpinned by attractive demographics and supported by a growing and aspirational middle class. Unfortunately, the region as a whole has also lagged the other more developed markets of Western Europe in terms of ESG awareness in general terms. This is true whether it be with regards to environmental issues, which are myriad in the poorer developing economies; social responsibilities, where worker’s rights are a distant afterthought in some cases; or governance, be it board independence or board diversity for companies around the region.
While some parts of Asia are ahead of others in certain aspects, and behind in others, we are encouraged by the real progress we feel is being made across the region. Nevertheless, in certain countries and industries the pace of change is still too slow for our liking.
We are often asked how we philosophically think about ESG as it pertains to our process, and how it adds value. In Asia, the team’s key focus is on risk mitigation. We take great care to ensure we are not investing with unscrupulous management teams, whether looking for evidence of questionable accounting practices or identifying companies whose sole focus is on the bottom line, without regard for their broader responsibilities. We believe that such companies are on ultimately unsustainable trajectories that will impact their returns to us as shareholders and effect a permanent impairment of our client’s capital. That said, no company is perfect. In our various screens, every company we research is flagged in some way for further investigation; we believe that our job is to research the risks associated with every investment we make from an ESG perspective to ensure they are understood as well as possible, ultimately helping us generate alpha over the longer term.
Incorporating ESG into our investment process is a dynamic and evolving process. We have learned a lot over the last five years and feel we have made good progress. We also recognize that we must continue to think about how we can improve further.
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