ESG

At M&L Capital Management Limited (“MLCM”), we believe that high standards of corporate responsibility will generally make good business sense and have the potential to protect and enhance investment returns.  Consequently, our investment process takes ESG issues into account when, in our view, these issues have a material impact on either investment risk or return.

Materiality of ESG factors in our investment approach

MLCM is dedicated to achieving the best possible risk-adjusted returns for our investors and we believe that responsible investment is essential in maximising returns to our clients.  We strive to gain an in-depth understanding of the relevant ESG issues applicable to our investments through our internal research process and we seek to identify these issues before they escalate into events that may potentially threaten the value of our investment.

We encourage integration of ESG issues into our investment decision-making process when it has a material impact on the investment or it has the potential to affect the long-term value of the investment.

Our ESG integrated approach is relevant across all the asset classes, sectors and markets in which we invest.

ESG Integration into our Investment Process

Who is responsible for ESG integration in MLCM?

ESG integration is carried out at analyst level within the investment team at MLCM.  Our fund managers are also active in analysing the potential effects of these factors when making investment decisions.

MLCM’s approach to integrating ESG factors into our investment analysis includes the following activities:

  • In-depth research;
  • Company engagement;
  • Active ownership; and
  • Collaboration within the investment industry.

In-depth research and training programmes

The cornerstone of our investment approach is bottom-up research.  As well as studying financial results, our portfolio managers and analysts are dedicated to carrying out additional qualitative analysis of potential investments.  They visit companies in person, examining everything that could have an effect on business, from the shop floor to the boardroom.  Customers and suppliers also come in for scrutiny.  In this way we can develop a 360-degree view of every company in which we invest and ESG factors are regularly considered in this research process.

Examples of ESG factors that our investment teams may consider as part of their company and industry analysis include:

  • Changes to regulation (e.g. GHG emissions restrictions, governance codes);
  • Physical threats (e.g. extreme weather, climate change);
  • Cost implications (e.g. arctic mining, product recalls, fines);
  • Brand and reputational issues (e.g. poor health and safety record, weak labour practices);
  • Supply chain management (e.g. increase in fatalities, LTIR, labour relations);
  • Gaining access to raw materials (e.g. security of oil supply, conflict minerals, bribery and corruption);
  • Product evolution (e.g. low energy products, renewable energy);
  • Shareholder rights (e.g. election of directors, capital amendments);
  • Corporate governance (e.g. Board structure, executive remuneration); and
  • Environmental performance data of buildings (e.g. energy and water consumption, GHG emissions and waste).

We have a clear and demonstrable policy of training and developing our analysts, which is measured through the use of training and competence matrices.  Examples of training programmes in the investment team in London include the CFA and CISI courses which generally include a module on ESG issues and the broad range of topics that fall under this heading.

Active Ownership

MLCM pursues an active investment style through portfolio management decisions, voting on resolutions at general meetings and maintaining an ongoing dialogue with a company’s management.  This involves holding regular meetings with companies, at Board and Senior Management level, to discuss specific results or events as well as a more informal dialogue incorporating site visits and other research initiatives.

MLCM is generally supportive of the management of the companies in which we invest, but we will nonetheless form our own views on the strategy and governance of a business.  These form part of our dialogue with companies.  On occasion, our views will differ from those of a company’s management and where this is accompanied by a failure to achieve our reasonable expectations for shareholder returns, we will consider promoting change.

Our specific response will be determined on a case-by-case basis, after weighing up the relative merit of intervention or a sale of the shares.  Typically we will choose to intervene to promote change when the expected benefits of intervention (through increased returns to our investors) outweigh the anticipated cost.

Engagement

We do screen out companies from our investment universe purely on the grounds of poor ESG performance and we do adopt a positive engagement approach whereby we discuss these issues with the management of the companies in which we invest or are considering investing on behalf of our clients.  We believe it is an advantage to us and our clients to build positive relationships with our investee companies as this enhances our ability to introduce constructive change where required.

We use the information gathered during these meetings both to inform our investment decisions and also to encourage the company’s management to improve procedures and policies.  We believe that this is the most effective way to improve corporate responsibility in our investee companies.

Although our portfolio managers and analysts meet the companies in which they invest on an ongoing basis, our ESG specialists also attend these company meetings with them when specific ESG issues are being addressed.  The specialists work with the portfolio managers and analysts to determine the objectives of the engagement, how best to achieve them and then will ultimately discuss the results of the engagement with the investment team and any additional information relevant to our investment decision.

ESG in practise

We have detailed some examples of our ESG policy in practise below:

  • We are committed to caring for our environment and ensuring that our carbon footprint is minimised.  One of our main policies to achieve this is the encouragement of the use of electronic communication with shareholders, in order to save paper, printing consumables and energy;
  • The portfolio holds no exposure to Mining or Oil & Gas Exploration companies;
  • The Fund Manger’s Investment Team only own cars which are Electric Vehicles; and
  • The Fund Manager’s Investment Team travel to work on public transport and maximise their use of public transport.

Conclusion

MLCM is a forward facing business who believes that good ESG will lead to good investment returns.

‘M&L Capital Management Limited (“MLCM”) is authorised and regulated by the Financial Conduct Authority under firm reference number 672181. MLCM is registered in England & Wales under number 04089418, with its registered address at 1st Floor, Arthur House, Chorlton Street, Manchester, M1 3FH.

© 2015 M&L CAPITAL MANAGEMENT LIMITED. ALL RIGHTS RESERVED.

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