General
ESGC Investing™ stands for Environmental, Social, Governance, and Carbon Investing, a proprietary investment methodology developed by Blue Marble Capital Management Limited combining Socially Responsible Investment (SRI - also known as Sustainable Investment), Carbon Finance, Financial Screens, Technical Indicators and Risk Management. The various components are described below.
Socially Responsible or Sustainable Investment
Socially responsible or sustainable investment incorporates the assessment of environmental, social, and corporate governance issues into the research process. The acronym most commonly used for this type of non-financial factor assessment is ESG which is short for Environmental, Social and Governance. It is the ESG part of ESGC Investing™ developed by Blue Marble Capital Management Limited. It covers various criteria such as shareholder treatment, internal controls, independence of directors, investor relations, compliance with laws, child labour, health and safety record, impact of products on society, waste management, community involvement, environmental record, diversity, human rights, and many other non-financial assessments.
Carbon Finance
Carbon Finance is a relatively new field in the investment industry. It is concerned with greenhouse gas emissions and the related investments that are developing as a result of a global move to limit and reduce these emissions. There are numerous compliance and voluntary greenhouse gas reduction schemes globally, the most recognizable being the Kyoto Protocol and the EU ETS. The common theme amongst these initiatives is that over time it is going to become more and more expensive for companies to emit greenhouse gases into the atmosphere.
This is where the C in ESGC Investing™ is added. In order to get the most accurate picture of a company it is not only necessary to assess their ESG factors, but also the potential impact of the cost of their greenhouse gas emissions. Greenhouse gas emissions are most commonly measured in tonnes of CO2 equivalent and the securities created include various types of carbon credits as well as related futures and options. As the global shift to carbon emission reduction takes hold it is likely that within 10 years there will be a global carbon standard and companies will either be very limited in their ability to emit greenhouse gases or they will have to pay dearly for each extra tonne they emit over their limit. This cost can be significant and in order to truly measure the sustainability of a firm, this factor must be accounted for as it is in ESGC Investing™.
Financial Screens
The application of ESG and Carbon screens is only part of the ESGC Investing™ methodology. The first two steps establish the universe of securities that are available for investment. The next step, the application of financial screens reduces the universe to securities that are also financially attractive from an investment perspective.
The ESGC Investing™ process uses a Margin of Safety and Common Sense set of financial measures. Each company is evaluated as if it were to be purchased in its entirety. ESGC Investing™ does not participate in fads or the latest hot sector. It is designed to select reasonably priced, well managed businesses that are or will be the best in their industry over time and will reward investors with a combination of growth and dividends. There are times when there will be NO investments that meet these criteria and in that case ESGC Investing™ will indicate cash or short term bonds as the most appropriate investments.
Technical Indicators
As the fourth component in the ESGC Investing™ methodology, technical indicators are used to assist with the entry and exit of investments. Broad market, industry specific, and security specific indicators are used to increase the probability of investment success.
Risk Management
The importance of risk management cannot be emphasized enough. The first three steps in the ESGC Investing™ process reduce many of the risks with respect to each individual investment and the fourth step attempts to reduce the timing risk with a particular investment. The risk management process incorporated into ESGC Investing™ is aimed to size positions correctly so that no one position entails more risk that the next, remove losing investments from the portfolio sooner rather than later, and to hold onto winning positions longer so that full value to the investor can be realized.