Evaluating companies for our clients’ portfolios is one of the key strategies NEI’s ESG Services Team utilizes to deliver both competitive returns and responsible investments. Our analysts use a unique, proprietary ESG evaluation methodology to examine the environmental, social and governance performance of every company in which our clients invest.
Once traditional financial analysis of the securities has been done by portfolio managers, our ESG Services Team steps in. Using a proprietary evaluation methodology, we ensure that each company meets our environmental, social and governance expectations for that sector. Evaluation criteria are based on research and the Core Values of our Socially Responsible Investing Program.
Company evaluations are also used to support several other ESG Services initiatives, including our Corporate Engagement Program, research and public policy and standards submissions.
Our evaluation criteria
Companies are assessed using data from many sources, such as industry associations and watchdogs, government databases, non-governmental organizations and specialist information providers. If published data are inadequate, we submit tailored information requests directly to the companies.
Companies are assessed against baseline expectations of environmental, social and governance systems and performance specific to the sector in which they operate. For example, we would have higher baseline expectations for health and safety systems for the mining sector than for the telecom sector.
Excluding companies that don’t meet standards
Any company that does not meet the minimum environmental, social and governance standards established by NEI ESG Services is considered ineligible for investment and excluded from client portfolio holdings for Ethical Funds. Always ineligible are companies involved primarily in tobacco, weapons or nuclear power and extractive companies that have no environmental management systems.
Advanced analysis and reporting
Our evaluations are integrated with Corporate Engagement tracking within our responsible investment management system, a comprehensive database that allows for advanced analysis and reporting.
Monitoring our holdings
Deciding if a company is eligible for investment is just the beginning of our process. Once a company meets our baseline ESG standards and is purchased for a portfolio, it is continuously monitored for headline risk.
This means that we monitor and evaluate stories about the companies in our portfolios that are published in credible media sources. If a company is portrayed in a negative manner, a Headline Risk Report is created to ensure our Corporate Engagement Program is addressing the appropriate issues facing the company and capturing any new developments.
Investigating a management breach
While a Headline Risk Report records and assesses controversial or negative media coverage about a company, a management breach is considered to have occurred if a company has committed a significant transgression of management ethics or responsibility practices. In this case, the company is no longer considered eligible for client portfolios and holdings are sold.