Trinity Street Asset Management LLP (“Trinity Street”) factors sustainability risks into its investment decision making process. A description of how that is done and its potential to impact client returns is set out below.
A key aspect of Trinity Street’s methodology is to understand ESG issues relating to investee companies and potential investee companies; for example, putting into context controversial issues that could affect the appropriate cost of capital, or evolving consumer preferences or policy settings that could impact cash flows positively or negatively.
Integration of ESG in Trinity Street’s investment process means that the investment team is making decisions while in possession of appropriate information, can determine how such information impacts the investment case, including valuation, and is in a position to engage with the management of the investee company representing the interests of asset owners as and where necessary.
Trinity Street’s philosophy is underpinned by a belief that the incorporation of any factor relevant to the overall performance of an investment is essential to building a robust understanding and assessment of an issuer and its cash flows and cost of capital, and that over time this will improve investment performance, promote better corporate business models and result in sustainable economic development.
An understanding of the alignment of a potential investee with fundamental principles and adherence to international laws and norms governing matters including human rights, labour, bribery and corruption, climate risks and the environment is fundamental to the investment approach.
ESG factors do not drive the investment process at Trinity Street but are an important factor that is considered when investing, holding, and divesting and when considering valuation.
Integration begins with Trinity Street’s portfolio managers and analysts considering ESG factors as part of their bottom-up, fundamental research. Trinity Street believes that embedding ESG considerations in the different stages of its investment process – rather than via separate ESG research function – provides the most effective integration strategy. Trinity Street receives inputs from third-party data sources to support the investment team’s analysis.
Analysts monitor and update any material ESG considerations relevant to a particular security on an ongoing basis as a part of their standard research activities. The investment team determines the extent to which various research inputs are incorporated and weighted in their investment decisions.
ESG risk considerations are integrated into our risk management framework and are part of the mainstream investment risk conversation held on a quarterly basis. Trinity Street’s performance and risk team uses industry-recognised tools to provide a top-down, portfolio level perspective on ESG factors. This ensures ESG analytics are integrated into regular portfolio performance and risk analysis, as well as discussions with and between portfolio managers.
