An Integrated Approach to ESG and Quality
ESG factors are key considerations in evaluating a company’s quality and sustainable growth prospects. State Street’s Fundamental Growth and Core (FGC) Equity team has a long history of integrating ESG concepts into its fundamental analysis of companies.
In the past, environmental, social and governance (ESG) considerations were often used as overlays in existing portfolios, i.e., as screening tools rather than as an integrated component of the investment process. The last decade has seen a shift by asset managers toward incorporating ESG concepts into their investment philosophies, with the aim of enhancing alpha generation and risk mitigation.
While some investment managers are just waking up to the idea of incorporating ESG into their investment process to meet client needs, State Street’s Fundamental Growth and Core (FGC) Equity team has a long history of integrating ESG concepts into its fundamental analysis of companies.
Our team and investment philosophy are united by a common belief — that quality companies with sustainable growth at attractive valuations can drive above-average, long-term investment returns. We incorporate ESG considerations into the quality assessment of a company using a proprietary metric called the Confidence Quotient (CQ), based on our belief that companies that are strong in ESG are more likely to deliver the sustainable growth we seek. ESG considerations are therefore integral to our alpha thesis and are not merely an overlay in the process.
The FGC team is focused on sustainability in every sense of the word. “Sustainable growth” refers to the durability of a company’s competitive advantage over the long term. The team firmly believes that companies with superior ESG practices that are material to their business are better positioned for sustainable growth over the long run. Having access to R-Factor™ — State Street’s transparent scoring model built on best-in-class data about financially material sustainability factors — as well as our firm’s industry-leading insights about asset stewardship, have strengthened the team’s effort to incorporate ESG into our investment process.
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Additional information regarding State Street Global Advisors ESG investment approach can be found on our website