At Wellington Management, we consider environmental, social, and corporate governance (ESG) criteria as one set of factors among many that should be weighed appropriately to inform investment decision-making.
We view ESG analysis and integration as having the potential for both return enhancement and risk mitigation. To help our portfolio managers and investment teams better assess risks and opportunities in client portfolios, we have integrated the analysis of ESG factors into our investment and risk-management processes firmwide.
Our Approach
We approach ESG integration as a tailored process that can be applied to all asset classes. We do this by analyzing ESG risks and opportunities in our clients’ portfolios, engaging with companies in which we invest to discuss material ESG issues, and voting proxies on our clients’ behalf to support decisions that we believe will maximize the long-term value for shareholders. Wellington Management’s culture is built to support collaboration and our open-architecture “community of investors” naturally lends itself to the integration of ESG considerations.
Our ESG Research team, part of the central Investment Research function, helps our portfolio managers and analysts gather deeper intelligence on ESG topics and integrate these considerations into the investment process. We believe that a holistic understanding of how companies deploy capital—financial, physical, and human—is helpful in framing an investment thesis, and examining ESG issues gives us a more complete picture. Our ESG analysts are responsible for conducting in-depth analysis of the ESG factors considered material to the companies within their sector coverage. Materiality is the foundation of our integration process, as the ESG considerations likely to impact long-term value are not identical for every sector or industry.
We believe material ESG issues are strategic business issues that can impact performance, so understanding them enables more informed investment decisions. Research suggests that companies focused on their strategy to address material ESG factors for their industry may outperform over the long term, while there is an implicit opportunity cost for companies that focus their efforts on immaterial factors.1 Applying a materiality lens to our broader stewardship efforts, the ESG team is also responsible for coordinating the proxy voting and engagement strategies for the companies in their sectors, alongside equity and fixed-income analysts and portfolio managers.
Our ESG team works closely with investment teams to incorporate our research into the investment process—regularly conducting in-depth portfolio reviews to evaluate ESG risks and strengths of particular holdings. With support from the ESG team, each of our portfolio managers develops their own investment approach whereby ESG considerations are integrated into their research and decision-making processes to the extent that they believe these issues may affect the long-term success of a company and potential investment returns. ESG integration can manifest itself within the investment thesis or portfolio weighting for a particular security, as well as within our proxy voting and company-engagement efforts.