Our ESG Investing Approach

A company’s environmental, social, and governance (ESG) issues can be a material driver of performance. In some cases, ESG factors have the potential to drive unacceptably wide or asymmetric ranges of long-term outcomes; while other issues, though not material today, could pose future risks if not adequately managed. Assessing the potential impact of ESG issues on a company is therefore critical to our investment process.

Value Investing and ESG

ESG Integration means fully understanding the value opportunity at stake for a given company.

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Value Investing + ESG Table
Value Investing ESG Integration
Temporary Difficulty
Investments are experiencing temporary difficulty ESG controversies can be a material driver of temporary difficulty
An opportunity to buy a good business "on sale" ESG laggards may have an embedded opportunity to improve
Long-Term Perspective
Requires patience/long investment horizon Many ESG issues require a long-term perspective
Alpha Potential
Earnings recovery = source of alpha potential ESG improvement = source of alpha potentia

ESG Integration

ESG integration is an inherent part of our dedication to finding value. As long-term investors, we use our influence to improve company ESG performance when the issues are material to investment outcomes.

1. Judgement Over Scoring ESG integration is stronger with fundamental research insights that reflect material ESG-related risk and opportunities, rather than a mechanistic approach based on third party ESG scores
2. Transition Over Stasis Companies and industries are constantly evolving; what matters most is the future, not the rear-view mirror. We do not believe that there is such a thing as an "ESG stock"
3. Focus Over Generalization Industry analysts lead our company-specific ESG research, supported by dedicated ESG analysts on the investment team
4.Engagement Over Exclusion ESG improvement comes from active ownership not divestment

Our Research Process

Our commitment to incorporating ESG into our investment process drives us to continually enhance the way we look at ESG issues. For a detailed explanation, review our comprehensive ESG Investing Approach.

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Research Process Graphic
1. Engage with Management
2. Identify stock-specific ESG issues
3. Analyze financial materiality of ESG issues
4. Evaluate ESG impact on future normal earnings
5. Monitor changes that may influence conclusion

Opportunity List

Our Opportunity List provides us with a structure to utilize fundamental research for assessing the likelihood of issue improvements.

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Opportunity List Graphic Opportunity List Graphic
Between Initial and Final Review
1. Identify Naive screening criteria help us identify areas where material ESG issues may exist. Fundamental research conducted by the analyst may uncover additional ESG concerns.
2. Assess The analyst conducts a thorough assessment on the materiality of the ESG issue(s), with support from the ESG team.
Final Review
3. Deliberate Portfolio managers, analysts, and the ESG team meet to arrive at a consensus on whether a name should be added to the Opportunity List
Post-Buy Decision
4. Monitor and Engage For names that are added to the list, a plan is formulated with objectives and milestones. The analyst is responsible for tracking and engaging with the company. There is no finite timeline for engagement or a decision on removal from the list

Thought Leadership

True Costs of ESG: Cobalt/EV Supply Chain Case Study

This case study explores the hidden social (and ultimately financial) costs related to the mining of cobalt, a critical component of EV batteries.

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Energy Transition

In discussing how we are positioning our portfolios to capitalize on energy’s future, we highlight GE, ArcelorMittal, Dow, NOV, Shell, Edison International, Lear, and Michelin.

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Analyzing Biodiversity

This primer explains why biodiversity matters, evaluates considerations for different sectors, and provides an engagement framework with regards to this increasing area of focus for investors.

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Philosophical Alignment ESG/Value

The value investing philosophy is inherently compatible with ESG integration.

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Assessing Corporate Governance

Assessing the impact of ‘good’ governance can be foundational to investment analysis, within the context of fundamental company research and commitment to active ownership.

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Analyzing Bribery & Corruption

Our approach to assessing and financializing bribery and corruption risks requires deep research and a focus on ongoing active engagement.

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Analyzing Modern Slavery

We present an industry risk assessment matrix, along with a guide for research and engagement on organizational risk.

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Managing Climate Risk

Climate change risks and opportunities are increasingly fundamental considerations as we focus on the long-term sustainability of a business.

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The Pzena Opportunity List

Our Opportunity List seeks to identify where engagement on material ESG issues could have a positive impact and improve financial outcomes.

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Utility of ESG Scores

Our analysis found that a company’s potential for ESG improvement has a much stronger relationship to investment performance than the company’s ESG score.

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Energy Investments in a Zero-Carbon World

We examine the risks and opportunities presented by the transition of the energy sector.

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Industry Perspectives

We offer an overview of the critical ESG issues relevant to certain industries (i.e., auto, oil services, utilities), developed as part of our proprietary research process.

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Quarterly Insights




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