Sustainability

At Alphinox, fundamental analysis is the foundation of our investment decisions. Through our bottom-up approach, we endeavor to understand the long-term sustainability of a company’s business model and the factors that could potentially impact its integrity. We believe that environmental, social, and governance (ESG) issues can influence investment risk and return and, therefore, incorporate ESG risk considerations into our fundamental investment analysis.

Our Research Team is responsible for evaluating ESG factors as part of our research process.

Framework

  • The objective of our fundamental research is to identify what we consider to be Quality companies: those with a robust financial foundation, a strong balance sheet and conservative financing, the ones that deploy capital profitably and effectively in the areas and markets where they enjoy a competitive advantage. Furthermore, we have always believed that stable and competent management team and responsible corporate strategy are critical characteristics for Quality companies. As a result, we use a variety of proprietary research and analytical tools, as well as external ESG sources to aid in identifying key ESG issues for companies under assessment.
  • We believe ESG factors vary in materiality and relevance to company’s financial performance and we have therefore integrated factor impact analysis in our investment decision process. It allows us to evaluate each factor importance to company’s business model and value drivers. Rather than adopting universal approach, we use ESG factor assessment methodology that is truly material to company’s fundamentals.
  • Although we are not activist investors, in a situation when we think that an ESG-related issue affects a portfolio business’ fundamentals, we immediately engage with the company. We expect the management teams of Quality companies to be competent and value environmental, social and governance issues as high as they would any other relevant business issue. We consider that Quality companies must create value for shareholders and all other stakeholders over the long term, thus ensuring the sustainability of the company itself.
  • In our investment process, we strictly exclude companies that violate and do not comply with International Labor Organizations and Conventions of the United Nations Global Compact Principles. This includes violations of human rights, labor, environment, and strong corruption issues. Additionally, we exclude certain industries, where according to our beliefs, humanitarian, social, ethical, or environmental concerns are involved. We consider businesses, associated with industries such as Tobacco, Arms and Weapons, Thermal Coal as greatly irresponsible towards society and environment, and therefore exclude them from our investment universe. Our investment portfolios have had historically zero exposure and will unlikely have it in the future to companies and industries with unsustainable business models, which, according to our investment philosophy, do not qualify as Quality. We are able to provide clients with additional exclusion filters following individual requests as well as to implement client-specific negative lists or selection criteria. Our research team has been providing ESG analysis and implementation since 2010 and is therefore experienced to assist our clients with increasing exposure to sustainable investments in their portfolios.
  • We see the topic “Stewardship” as our direct responsibility towards our clients with regards to the growth of the medium and long-term returns of their investments through encouraging portfolio companies to enhance their sustainable rank. In order to achieve that we, as a relatively insignificant stakeholder volume-wise, engage in dialogues with companies on ESG-related aspects that are either unclearly defined in their policies or not sufficiently covered in ESG reports. The task of our analysts is to understand our candidate companies to the fullest, which includes not only underlying financials but their operations and processes. Our mission is, through asking critical questions, requesting detailed account for past, current or future policies and practices as well as through analyzing companies’ efforts with regards to their ESG behavior, to ensure that our investment portfolios contain high quality sustainable companies. Our analysts have been involved in ESG research since 2010 and through years of experience, possess sufficient expertise. Additionally, our Management is considering the introduction of auxiliary training with an emphasis on ESG and stewardship responsibilities as such.