ESG in 2019

Sven Bouman, of Saemor, addresses the current state of ESG investing

How does Saemor Capital view responsible investment and how long has Saemor been active in ESG investing?

We are a systematic equity specialist and a proponent of responsible investment. ESG issues can have an impact on a company’s financial performance, and thereby investment performance. This is the main reason why we actively pursue an ESG policy; it is part of our fiduciary duty. Saemor has a Responsible Investment (RI) committee overseeing the processes and adherence to the RI policy.

Since the firm was founded in 2008, we have incorporated ESG principles into our investment process by placing a strong focus on governance. In January 2011, Saemor became a signatory to the United Nations-supported Principles for Responsible Investment (PRI) under Aegon Asset Management, which holds a majority stake in Saemor Capital. We are also a member of the PRI hedge fund working group, responsible for developing standards for relative value hedge funds.

Is systematic investing an effective way to implement responsible investment goals?

Investing with ESG objectives fits well with a systematic multi-factor approach.  Firstly, a systematic approach can easily process and rigorously evaluate the proliferation of ESG data sets that are becoming available.  Secondly, a multi-factor approach can measure the balance between high ranking ESG scores and other investment and risk factors.  Many investors are looking for robust companies that score highly on ESG factors and they also are looking for attractive returns.  It is not the case of one or the other.

As a systematic equity manager, what consideration is given to issues of sustainability in the investment process?

We employ a proprietary systematic model, ranking stocks based on factors that we find are helpful for predicting returns. In recent years we have included ESG factors in this broad list of factors. Subsequently, a portfolio is constructed that maximises expected alpha, subject to a number of constraints. Holding restrictions are implemented to deal with stocks experiencing ESG risk, M&A risk, litigation risk, political risk, or other conditions.

We apply ESG principles in our day-to-day management. Our investment approach is pragmatic and empirical, and we do not treat ESG any differently. We assess the merits of ESG adoption by looking at empirical and objective evidence on ESG investing. A number of ESG factors are included into our investment process. These factors are selected on their alpha appeal and/or risk mitigation potential.

As a responsible investor we have put our clients’ long term needs and goals at the heart of our thinking. We invest with our ultimate asset owners desires and have chosen to exclude Tobacco, Controversial Weapons, Coal Mining and Palm Oil stocks.

For investors who have customised ESG guidelines, we have the ability to construct portfolios incorporating their specific objectives, risk budgets and investment restrictions. We can assist investors by informing them about potential trade-offs between alpha return and sustainability goals and thereby advise them on how to best express their values in their portfolios.  According to our findings, it is possible to construct ESG portfolios in a systematic way without significantly giving up on performance.

When you look at ESG data, do you see consistency among different sources?

Company ratings differ depending on the data provider – sometimes they are surprisingly uncorrelated. We have to think carefully about how we use the data and determine at what stage in our investment process it should be applied. This can depend on things like the nature of the data.  With respect to the nature of the data, one has to look at how ESG data is collected and processed. In most cases, this is not market data collected regularly or in real-time. Data may change only once a year. A solid understanding of the data is required before use for investment purposes.

Sven Bouman is the CEO of Saemor Capital. He founded Saemor in 2008 after having been the head of equities at AEGON Asset Management NL, responsible for AEGON’s range of global and regional equity funds, including the global SRI Fund. 

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