We understand that a company’s relationships with its stakeholders—including customers, suppliers, employees, communities, governments, creditors, shareholders, and the broader environment—can meaningfully impact its future investment value. Therefore, our research teams have integrated ESG factors into the investment process to ensure our investment conclusions incorporate the risks that unsustainable business practices can have on a company and its stakeholders. 

Although we consider ESG factors to be material to a company’s future investment prospects, they are considered in the context of the issuer’s underlying business model, operating fundamentals, and market position. As part of our investment process, this review is accompanied by thorough valuation analysis.

SBH is a signatory of the United Nations’ Principles for Responsible Investment (PRI), the world’s leading proponent of responsible investing. Signing the internationally recognized PRI reflects our commitment to responsible investment within the global community, seeking companies that exhibit positive stewardship in their ESG practices. The firm’s senior management is highly involved in the firm’s ESG efforts and we have an internal ESG committee tasked with developing and monitoring best practices across the organization.

Integration of ESG Into the Investment Process

At SBH, we analyze a variety of metrics when assessing ESG exposures in our investment process. These include, but are not limited to, the following:

• Environmental: Energy efficiency, pollution and waste, climate change, and biodiversity impacts.

• Social: Human capital management, product liability, community relations, and sourcing practices.

• Governance: Board composition, executive compensation, accounting practices, and shareholder rights.

Our equity portfolios are built through a proprietary research process based on deep quantitative and qualitative research on our portfolio companies, peers, and industry conditions.

Through this process, we develop an understanding of a company’s ESG practices and risks, and we track and measure industry-relevant ESG metrics for each company. We create an investment thesis for each company we consider for purchase that embeds the implications of a company’s ESG risks and/or competitive advantages. The thesis for each company we purchase is regularly reviewed. 

We often start with governance as a primary factor when analyzing a company, as we believe unless the management team/board of directors is aware and willing to take the ESG framework into account, the entire exercise of ESG is one lacking effect or importance. We believe the experience and tenure of our analysts and portfolio managers give us an advantage in determining the materiality of ESG factors.

Our fixed income portfolios are built using a proprietary research process with the goal of investing in high quality securities that we believe will perform well over market cycles and offer downside protection.

Our team integrates ESG analysis into the investment process primarily as a risk-mitigation tool. We believe attempts to define quality issuers absent a clear understanding of the issuer’s management of ESG factors would be remiss and result in increased susceptibility for underperformance of an investment. Evaluation of an issuer’s stance and history in relation to the management of ESG issues deepens our understanding of the increased risk of corporate underperformance, litigation, draws on liquidity or even insolvency. Our analysts are tasked with evaluating issuers across ESG factors to account for the company’s historical activities, current messaging, and actions of the management team.