As further evidence of its commitment to ESG investing, 1832 is a signatory to the United Nations-supported Principles for Responsible Investment (PRI) and is also a proud member of both the Responsible Investment Association (RIA) and the Canadian Coalition for Good Governance (CCGG), where it serves on the group’s Environmental and Social Committee.
The Case for Active ESG Investing
As dedicated active managers, Yungblut stresses that Dynamic Funds relies on proprietary active fundamental ESG analysis. “When it comes to passive ESG scores, I don’t think you get as full an understanding of material ESG factors,” Yungblut says, adding that passive scores tend to be static snapshots, less focused on future performance. Consequently, Yungblut believes that active managers are able to derive a much more nuanced understanding of a company’s ESG profile – both now and into the future. “In many cases, we’ve known the businesses for years, and can determine which ESG-related factors are material, and also where is the business headed,” he says.
“At Dynamic, we want to make our own independent assessment, determine what we think is going to drive a company forward and then decide whether or not to invest,” Yungblut says. “We never want to outsource our decision-making to an external ratings company.”
To underscore the benefits of an active ESG approach, Yungblut points to Dynamic’s first ESG-related thematic fund, the Dynamic Energy Evolution Fund. Launched in late October, the fund is committed to finding global opportunities related to the transition to more sustainable energy sources.
Yungblut highlights that the investment team applies the same intensive research process that it applies to all its mandates to identify quality companies at a reasonable price. That independent process generally results in companies in the clean energy space with high ESG scores, however many clean energy companies with high ESG scores are not in the portfolio because they didn’t meet the quality threshold as solid investments. A high ESG score does not comprehensively assess the business outlook of a company, and a passive approach cannot identify those companies with the best return prospects even within a given theme. A passive strategy may also have missed out on an opportunity in a solar power related technology company that has a low ESG score due to lack of reporting on employee development initiatives. Our independent analysis identified a strong company, but not any material issues of concern that impacted the investment decision.
