Our approach
to Sustainability

At this early stage, we focus on tilting our universe of potential investments towards more sustainable companies. This takes place in two steps. First, we apply exclusions – we have always excluded companies that are active in mining and processing of coal and oil as well as weapons producers. In the second step, we use sustainability scores along financial indicators to rank the companies. Examples of scores we use in governance are for example, the independence of chairs of audit and compensation committees, CEO duality, etc. For environmental scores, we focus on proxies of climate change impact minimization. In the social domain, key are human and labor rights management. These scores are then used together with the financial eval­u­ation described in the investment process section to produce a ranking of in our universe of potential in­vest­ments. The best performing companies continue into the next stage, pre-check.

Morningstar Sustainability Rating

We us our proprietary equity screening model to select and rank thousands of stocks worldwide in a very short amount of time. Based on our internally developed and defined criteria, this model searches through the global stock markets for target companies. These criteria include financial risk measures, valuation metrics, sus­tain­ability criteria and governance scores. The result of the equity screen­ing is an up-to-date short list of stocks to be analyzed by our equity research team.

Morningstar Performance Rating

Morningstar Medalist Rating

During pre-check, we focus on the companies performing best on financial and sustainability metrics. In this stage, we learn more about the company’s business model, financial performance during crisis, and their approach to sustainability. Since all the companies at this stage are satisfying our minimum standards already, we move beyond ‘ticking the boxes’ and pay attention to more qualitative criteria: does the com­pen­sa­tion scheme align the interests of the management with those of share­holders? Is the management sufficiently diverse? Our investment committee then votes on those com­panies that best answer our sus­tain­ability and financial considerations. The selected ones are moved to the “in-depth” stage of our process.

Morningstar Sustainability Rating

We conduct all equity research in-house. In order to best allocate our resources in this time intensive research process, we first conduct a pre-research check of all stocks of the short list. In this step, we determine whether we even want to own a given company from an ethical standpoint, whether we have the competence to comprehend the business model and understand the products, or whether we can gather a sufficient information basis to make a sound decision (e.g. transparency, language, accounting, etc.). After just one day of research, we already dismiss 9 out of 10 stocks, because they don’t meet our expectations.

Morningstar Performance Rating

Morningstar Medalist Rating

This is the most detailed oriented stage. From among several thousands companies at the screening stage, only about 10 reach the in-depth stage of our process every year. Here, we cus­tomize the sustainability research to the industry in which the company op­er­ates: Naturally, just as financial metrics differ significantly between the banking and manufacturing sector, so does the sustainability focus. At this stage, we also regularly engage with com­panies and make sustainability a part of that conversation. Regardless of the metrics used, the goal remains the same: we are hoping to identify a well-managed company that minimizes its environmental footprint, is a good em­ployer and appreciated by its com­mu­ni­ty, and creates value for its customers.

Morningstar Sustainability Rating

At the core of our investment process lies the deep research phase. In order to assess the firm specific risks, supply chain, competitive situation or to gain an understanding of the company culture, we go through a rigorous and comprehensive research process. We dissect financial statements in search of earnings management, meet the man­age­ment to discuss the firm’s strategy and vision, conduct interviews with clients to understand their pur­chase behavior and preferences, or oc­ca­sion­ally meet with industry reg­u­lators or politicians to better grasp the future challenges the company might be facing. The goal is to gain a com­pre­hen­sive understanding of the company to make a well informed investment decision.

Morningstar Performance Rating

Morningstar Medalist Rating

When our investment committee eval­u­ates a potential stock for inclusion in our fund, they eval­u­ate both financial and sustainability metrics and select the best possible investment.

Morningstar Sustainability Rating

Prior to any decision, all analysts are asked to challenge the research report. Assumptions are being second guessed, we think in scenarios, or some­times we intentionally take a po­lariz­ing position in a discussion. Should we come to the conclusion that we found a new investment, then this new stock must replace an existing portfolio position. We call this the chal­lenger process. It raises the bar for new stocks while forcing us to regularly second guess our current investments.

Morningstar Performance Rating

Morningstar Medalist Rating