Active Investors Well Positioned to Integrate ESG Research
December 1, 2020
Sands Capital’s Director of Stewardship Davis Catlin spoke about passive versus active approaches to environmental, social, and corporate governance (ESG) investing at the European Sustainable Investment Summit “Challenges and opportunities in sustainable and responsible investing mid-and post-crisis” held virtually November 24 to 25 and sponsored by Informa Connect.
The panel included passive and active managers and gave them the opportunity to compare their approaches to ESG integration.
Catlin said he believes Sands Capital’s approach is highly differentiated, especially versus passive managers, because of its concentrated holdings, focus on identifying materiality, and its approach to building deep partnership-minded two-way relationships with its companies. He explained how Sands Capital has chosen to integrate ESG research into its overall bottom-up research process so that each analyst is involved in evaluating the ESG practices of the businesses under their coverage rather than a separate group attempt to bolt-on the analysis.
Discussing competitive differentiation between active and passive managers, Catlin said active managers can identify material issues for each specific business, while passive managers often follow rules or identify themes that might not apply to specific companies. Additionally, he noted that active investors can decide not to own a business that does not fit its ESG criteria, whereas passive managers must own companies in their respective benchmarks.
He noted that Sands Capital is focused on balancing what will add long-term value for each individual business with broader long-term systematic changes. This contrasts with passive investors, which he said frequently only vote broadly for systematic changes without consideration of what’s best for the individual company.
Catlin discussed how U.S. investors are increasingly demanding ESG information about companies they invest in. Specifically, he said U.S. asset owners are now able to leverage knowledge and best practices from Europe and Australia to ramp up their own versions of ESG and impact investing more rapidly.
As Director of Stewardship, Catlin guides the firm’s ESG research practices and active ownership efforts, which include engaging the management teams of portfolio businesses and voting on ballot proposals.
The views expressed are the opinion of Sands Capital Management and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The views expressed were current as of the date indicated and are subject to change. This material may contain forward-looking statements, which are subject to uncertainty and contingencies outside of Sands Capital’s control. Readers should not place undue reliance upon these forward-looking statements. There is no guarantee that Sands Capital will meet its stated goals. Past performance is not indicative of future results.