With environmental issues at the forefront of investors’ minds, certain investment teams in our Goldman Sachs Asset Management (GSAM) division continue to increase the formal integration of environmental, social and governance (ESG) research.
Responsible and Sustainable Investing at GSAM
At GSAM, we believe responsible and sustainable investing extends beyond the evaluation of quantitative factors and traditional fundamental analysis. Where material, it should include the analysis of an entity’s impact on its stakeholders, the environment and society. We recognize that these environmental, social and governance (ESG) factors can affect investment performance, expose potential investment risks and provide an indication of management excellence and leadership. As a result, it is important for our investment professionals to understand how ESG factors influence our investment decisions. To this end, GSAM is working to more formally integrate the analysis of these factors into our investment and company engagement processes, where appropriate and consistent with our fiduciary duties.
GSAM is signatory to the United Nations Principles of Responsible Investment (UNPRI) and the UK Stewardship Code, and is a CDP Investor signatory.
The GSAM Fundamental Equity team manages a range of equity strategies across market capitalizations, investment styles and emerging and developed markets. We invest with a long-term view and seek to invest in companies with shareholder-oriented management teams and a focus on quality characteristics. These characteristics include sustainable or competitive operating advantages, strong balance sheets and cash flow generation, management teams who are excellent stewards of capital, and the ability to earn in excess of the cost of capital.
The GSAM Fundamental Equity team has long considered ESG, particularly governance, issues to varying degrees in the investment process. Integrating ESG factors into the investment process is a valuable way to identify key risk and return drivers for our investments. Adherence to best practices in the ESG areas can benefit a company by minimizing its costs and liabilities, and enhancing its profitability and competitive positioning. When evaluating companies and meeting with management teams, we believe that a proactive focus on sustainability can be an indication of a strong corporate strategy and business model.
In order to quantify a company’s commitment to ESG responsibility, we have developed an in-house comprehensive evaluation of ESG factors. This evaluation is applied to the names within our responsible equity strategies. For these portfolios, in addition to a score threshold needed to pass, we also seek to avoid companies that, in our view, have material exposure to controversial, material human rights, environmental or product responsibility issues.
In addition to resources dedicated solely to ESG, governance and proxy analysis, Fundamental Equity has designated research analysts and/or portfolio managers within our regional investment teams to integrate ESG analysis into the fundamental, bottom-up investment research process to varying degrees within strategies across the platform.
The GSAM Fixed Income team manages a range of strategies within the global fixed income market, including both specialized single-sector and well-diversified multi-sector portfolios, as well as global liquidity management solutions. We believe the Corporate Credit sector is a natural starting point as we seek to enhance our implementation of ESG analysis within the global fixed income market over time, where appropriate and consistent with fiduciary duty. The Corporate Credit team seeks to generate consistent excess returns through intelligent, risk-managed investing. We aim to uncover market opportunities worldwide, leveraging our global coverage and local expertise, and taking an active and fundamental approach to investing. Our research-driven process balances rigorous credit assessment and top-down strategic positioning, and employs sophisticated analytics and processes to detect and mitigate risk.
Within the Corporate Credit team, our fundamental security analysis process incorporates material risk factors, quantitative and qualitative, financial and non-financial. This includes ESG factors as appropriate. Using proprietary and external research sources, we seek to identify those companies whose exposures in these areas highlight potential business risks and require heightened focus. We capture both quantitative and qualitative data points within our research depository and portfolio management systems to maintain records and enable more comprehensive reporting. Analysts are responsible for understanding material ESG risks and incorporating them into their overall research and valuation process.