Sustainable, Responsible &/or ESG Policy:
The strategy intends to invest in companies with measurable ESG outcomes, as determined by Brown Advisory, and seeks to screen out particular companies and industries. In addition to our proprietary and qualitative ESG analysis, we rely on a third-party provider to apply a rules-based screening process which seeks to identify companies that may have controversial business involvement, as determined by Brown Advisory.
The U.S. Sustainable Growth Fund seeks to exclude:
- companies that defy the United Nations Global Compact Principles (UNGC)
- companies that directly manufacture controversial weapons (defined as cluster munitions, land mines, depleted uranium)
- companies that conduct animal testing for non-medical purposes and do not exhibit strong ethical policies and practices
- companies whose primary business activities are directly tied to conventional exploring, extracting, producing, manufacturing or refining coal, oil or gas; companies whose primary business activities are directly tied to producing electricity derived from fossil fuels; companies with significant assets directly invested in conventional fossil fuel reserves.
The U.S. Sustainable Growth Fund seeks to impose investment guidelines on the following business activities in a manner designed to ensure that a company will not be included if it has:
- more than 5% of its revenue derived directly from the manufacture of conventional weapons
- more than 5% of its revenue derived directly from alcohol products
- more than 5% of its revenue derived directly from tobacco products
- more than 5% of its revenue derived directly from adult entertainment
- more than 5% of its revenue derived directly from gambling
One of the managers’ means of discerning the companies that are likely to outperform the broad market over the long term is to find fundamentally strong companies that are using sustainability drivers to add value for shareholders. We refer to these specific sustainability drivers as Sustainable Business Advantages or ‘SBA’. There are three distinct ways companies can use SBA to improve their financial position:
- Revenue Growth: by offering a product or service that helps customers reduce the cost of doing business – energy usage, water intake, raw material usage – helping to drive productivity and efficiency for their customers.
- Cost Improvements: companies that are productivity leaders themselves.
- Enhanced Franchise Value: Improving the overall value of the business franchise through increasing customer loyalty, elevating the brand reputation, and improving employee engagement, retention and recruitment.
Sustainable, Responsible &/or ESG Process:
Integrated ESG Research
One of the managers’ means of discerning the companies that are likely to outperform the broad market over the long term is to find fundamentally strong companies that are using sustainability drivers to add value for shareholders. We refer to these specific sustainability drivers as Sustainable Business Advantages or ‘SBA’. There are three distinct ways companies can use SBA to improve their financial position:
- Revenue Growth: by offering a product or service that helps customers reduce the cost of doing business – energy usage, water intake, raw material usage – helping to drive productivity and efficiency for their customers.
- Cost Improvements: companies that are productivity leaders themselves.
- Enhanced Franchise Value: Improving the overall value of the business franchise through increasing customer loyalty, elevating the brand reputation, and improving employee engagement, retention and recruitment.
Research includes a business-focused assessment of the company’s sustainably driven opportunities, such as particular product lines which satisfy demand for an environmental solution, or a business model whose sustainable attributes contribute to a revenue, cost or overall competitive advantage to the company. Sustainable Business Advantages make great companies even better and add to bottom line performance. The financial impact of these sustainability drivers is not easily extracted from the financial data available to most investors. As a result, many investment managers are not well-equipped to understand how a company’s prospects are likely to be influenced by exogenous factors such as the firm’s operating environment, changing consumer preferences, or natural resource constraints.
In addition to their SBA and Sustainable Opportunity analysis, the ESG/Sustainable research analysts complete a thorough ESG risk assessment of every company in our pipeline of potential investments and all investments active in our equity strategies, with the goal of uncovering any undesired risks associated with the company that might not be revealed by a traditional investment research approach. The portfolio managers utilise their own expertise as well as independent third-party ESG research. The managers develop a proprietary view on over 30 factors, including:
- Environmental impacts/benefits of the company’s operations, distribution systems and facilities
- Quality of the company’s environmental policy, safety policy and other management systems
- The company’s track record of compliance with environmental regulations, and the potential for future violations inherent in the company’s business model
- Quality of the company’s resource management practices (level of consumption of raw materials, efficient use and reuse of materials, effective management of waste streams)
- The company’s reputational risks as they relate to ESG issues
In addition to meetings with management, competitors and customers, the team has access to numerous third-party ESG ratings and data providers, and our ESG research analysts regularly engage with third-party data providers to ensure that we remain up to date with what is available in the market.
Currently, Brown Advisory subscribes to CDP, MSCI ESG Research Manager, ISS, RisQ and Bloomberg New Energy Finance. Data and ratings from these sources are just some of the numerous sources consulted in our efforts to fully understand the sustainable risks and opportunities associated with a given investment.
Please note that although we have access to third-party rating systems, we do not lean on external ESG ratings to determine whether a company is an appropriate fit for our strategies. As our ESG team has long believed, no raw ESG rating can tell an investor whether a company is a sound investment. We believe that primary research is the only way to consistently arrive at well-informed investment decisions. The team first wrote about this in 2018, which can be found in our article Take ESG Ratings with A Grain Of Salt.
Resources, Affiliations & Corporate Strategies
Brown Advisory has 25 colleagues who are wholly or predominantly dedicated to our sustainable Investing practice. These colleagues are embedded into the firm’s institutional or private client, endowment and foundation businesses. We have not seen any departures from this team in the last 12 months, rather we have added to it and plan to continue strengthening the team in the years ahead. Brown Advisory has had Sustainable Investing expertise at the firm since the firm’s founding. Our first dedicated Sustainable strategy was launched in 2009, and we began formalising our ESG research team with the hire of Emily Dwyer in 2014.
Members of our sustainable investing team include:
- Carey Buxton – Head of Sustainable Investing Business
- Dune Thorne, CTFA, CWS – Head of Strategic Initiatives U.S. Private Client
- Sarah Yang – Institutional Sustainable Investing Analyst
- Jillian Pruner – Institutional Sustainable Investing Analyst
- Elsa Iovanella – PCE&F Sustainable Investing Analyst
- Ethan Berkwits – Director of Sustainable Investing Messaging
- Julia Dembowski – Sustainable Investing Education Coordinator
- Rebecka Markland – Sustainable Investing Business Intelligence Specialist
Investment Leadership
- Karina Funk, CFA – Chair of Sustainable Investing; Portfolio Manager
- Erika Pagel – CIO of Sustainable Investing; Portfolio Manager
- Amy Hauter, CFA – Head of Sustainable Fixed Income; Portfolio Manager
- Emily Dwyer – Portfolio Manager
ESG Research
- Lisa Fillingame Abraham – ESG Fixed Income Research Analyst
- Katja Dunlap – ESG Fixed Income Research Analyst
- Anna Rudgard – ESG Fixed Income Research Analyst
- Louise Nankiinga – ESG Equity Research Analyst
- Victoria Avara - ESG Equity Research Analyst
- Angela Wilson - ESG Equity Research Analyst
- Lara Wigan - ESG Equity Research Analyst
- Katherine Kroll – Investment Specialist; Engagement Specialist
Private Client, Endowment and Foundations Sustainable Investing Solutions
- Kif Hancock, CFA – Head of International ISG
- Taylor Graff, CFA – Head of Asset Allocation Research
- Morgan Kinsey – ISG Research Analyst
- Elise Liberto – Private Equity Analyst
- Angelina Choi – Portfolio Analyst
Brown Advisory has access to numerous third-party ESG ratings and data providers, and our ESG research analysts regularly engage with third-party data providers to ensure that we remain up to date with what is available in the market.
Currently, Brown Advisory subscribes to CDP, MSCI ESG Research Manager, ISS, RisQ and Bloomberg New Energy Finance. Data and ratings from these sources are just some of the numerous sources consulted in our efforts to fully understand the sustainable risks and opportunities associated with a given investment.
Please note that although we have access to third-party rating systems, we do not lean on external ESG ratings to determine whether a company is an appropriate fit for our strategies. As our ESG team has long believed, no raw ESG rating can tell an investor whether a company is a sound investment. We believe that primary research is the only way to consistently arrive at well-informed investment decisions. The team first wrote about this in 2018, which can be found in our article Take ESG Ratings with A Grain Of Salt.
We also utilise our partnerships to contribute to and benefit from thought leadership in the following coalitions and memberships within which we have participated over the past year:
- PRI: Principles for Responsible Investment
- SASB: Sustainability Accounting Standards Board
- Net Zero Asset Managers Initiative (NZAM)
- Ceres
- CDP
- SRI Conference & Community
- TCFD: Task Force on Climate-Related Financial Disclosures
- Climate Action 100+
- Green Bond Principles
- Intentional Endowments Network
- WISE: Women Investing for a Sustainable Economy
- Confluence Philanthropy
- Mission Investor Exchange
- BASIC: Boston Area Sustainable Investment Consortium
- ICCR: Interfaith Centre on Corporate Responsibility
- Farm Animal Investment Risk and Return (FAIRR)
- US SIF
We continually enhance and improve this process year over year by capturing new forms of data.
Brown Advisory has also established a Sustainable Investing Advisory Board. This board was established to help us focus on our business strategy as we build out our sustainable investing capabilities beyond our ESG focused strategies. Among the strategic guidance that this board provides, they advise our investment teams as to how they might consider incorporating ESG factors into investment decisions in ways that have clear fundamental benefits. The board includes members from Brown Advisory, as well as external sustainable investing experts. Please see here for board members.
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