Integration
Overview
Research is the source of our investment ideas. In conducting research for equity and credit opportunities, Jennison’s investment professionals analyze, as an intrinsic element of our process, the potential risks and opportunities of various factors. These include sustainability factors which are directly linked to investment risks or opportunities and evaluated for their potential to materially affect an investment candidate’s financial prospects or business model.
By integrating sustainability considerations into our investment processes, we are better positioned to identify and address relevant issues early on, paving the way to take timely action.
Sustainability: Investment Implications
Our research leads us to a broad spectrum of companies across different sectors and countries. Each investment idea has a unique set of considerations and the role of environmental, social, and governance factors can vary markedly from one situation to another. There are times when these considerations will be material to a buy or sell decision as well as in calibrating a portfolio weight. There will also be instances when these factors are practically negligible in an investment decision. We utilize our fundamental, bottom-up research to identify the relevance and level of materiality of these issues.
We believe that environmental risk, including climate risk, may be a material consideration for companies. Key issues include:
- Carbon emissions
- Deforestation
- Water risks
- Energy efficiency
Of course, environmental considerations vary widely by sector, investment strategy, and client mandate. To date we have observed that the average technology company faces far fewer environmental challenges than a long-established industrial company. Additionally, while global environmental laws and standards continue to expand, industrial companies are not necessarily without investment merit. We believe it is possible to analyze these firms relative to their industry peer group to understand their achievements and progress in broad context.
Sustainability: Investment Implications
Our research leads us to a broad spectrum of companies across different sectors and countries. Each investment idea has a unique set of considerations and the role of environmental, social, and governance factors can vary markedly from one situation to another. There are times when these considerations will be material to a buy or sell decision as well as in calibrating a portfolio weight. There will also be instances when these factors are practically negligible in an investment decision. We utilize our fundamental, bottom-up research to identify the relevance and level of materiality of these issues.
As employers and providers of products and services, companies perform an essential social function. We believe a company’s ability to maintain trust and strong relationships with its employees and customers is essential to its longevity and ability to create value. Social considerations include:
- Product safety and governance
- Human capital
- Cybersecurity
- Supply chain management
- Labor practices
- Workplace health and safety
While labor relations are important across all sectors, other aspects of the social dimension vary markedly by sector and region. For example, cybersecurity and respect for data privacy can impact the reputation and brand of a company more than ever before, especially among data-rich technology companies. By evaluating a company’s social orientation in a thoughtful and holistic way, we believe we can ascribe the appropriate level of risk associated with these complex and multi-faceted issues.
Sustainability: Investment Implications
Our research leads us to a broad spectrum of companies across different sectors and countries. Each investment idea has a unique set of considerations and the role of environmental, social, and governance factors can vary markedly from one situation to another. There are times when these considerations will be material to a buy or sell decision as well as in calibrating a portfolio weight. There will also be instances when these factors are practically negligible in an investment decision. We utilize our fundamental, bottom-up research to identify the relevance and level of materiality of these issues.
We believe that good corporate governance is an important driver of the long-term success of a company. With proper oversight, environmental and social concerns should be minimal and dealt with quickly and effectively. Governance issues that we often encounter include:
- Management compensation
- Board structure and composition
- Differential voting rights
- Shareholder rights
Through our fundamental security selection process, we seek to determine if current management will be a good steward of investors’ capital. Understanding a company’s governance and oversight structures is a key part of this process. We do not impose a one-size-fits-all approach when evaluating these frameworks as there is no reason to believe that certain board or management structures or voting structures are inherently better or worse than others. Instead, we prefer to take an evidence-based approach, doing the hard analytical work of exploring each individual scenario to understand its history as well as its prospective impact.
Sustainability: Investment Implications
Our research leads us to a broad spectrum of companies across different sectors and countries. Each investment idea has a unique set of considerations and the role of environmental, social, and governance factors can vary markedly from one situation to another. There are times when these considerations will be material to a buy or sell decision as well as in calibrating a portfolio weight. There will also be instances when these factors are practically negligible in an investment decision. We utilize our fundamental, bottom-up research to identify the relevance and level of materiality of these issues.
