ESG Integration

What is ESG integration?

ESG integration describes the process of integrating environmental, social and governance (ESG) factors within company analysis, portfolio construction and other investment decisions.

ESG is used in a multitude of contexts but is typically a shorthand for an information set relevant to understanding investment risk/opportunity. While other investors may apply ESG information in different ways (for example, to achieve non-financial objectives), Paradice primarily uses “ESG” in the context of supporting us to make better-informed investment decisions. People often use the term “ESG” to refer to other approaches within RI which take into account ESG information or values-based considerations, such as ethical investing approaches or sustainable investing (an example would be using ESG information like a company’s emissions profile to construct a low-carbon portfolio).

To Paradice, ESG integration specifically refers to considering within the investment process those ESG factors which have the potential to be financially material, for example, impacting a company’s earnings (positively or negatively).

ESG integration at Paradice

Paradice investment teams integrate financially material ESG factors within their investment processes, in a manner most relevant to their respective strategies and asset class, based on risk or value considerations, for the purpose of enhancing risk-adjusted returns for our clients (as opposed to being driven by ethical or sustainability considerations). They are supported by a dedicated ESG Team and a high level ESG integration framework, as well as internal tools which focus on identifying climate change and modern slavery risks.

Our teams consider ESG matters from the perspective of how they could impact an investee company’s ability to generate returns for shareholders over the long term. ESG issues, which may be assessed within our investment processes, include but are not limited to: