Integrating ESG into existing fundamental and quantitative research disciplines may provide additional insights into financial and non-financial factors which can influence the long-term performance, risk, and suitability of specific investments and complement the research process. As such, it augments broader research efforts, rather than exercising priority over them, in an effort to improve overall investment conclusions. We incorporate ESG research using a non-exclusionary, industry-neutral framework.
Where we employ ESG analysis, we do so with the objective of informing both our bottom-up company and industry analysis, and our top-down risk management. On a bottom-up security-specific basis, ESG analysis complements our rigorous evaluation of drivers of risk and return. In instances where ESG-related issues present broader macro or systemic risk factors, ESG criteria provide an additional lever to help us manage the potential for external risk shocks. This allows us to focus on the bottom-up, research-driven strategies which represent our core source of performance advantage.
TAM evaluates companies using a range of research including reports, metrics, ratings, and scores. We acquire fundamental and quantitative information from third party providers, including providers of in-depth ESG data. The ESG criteria and data considered are tailored by industry for relevance and materiality. The ESG data pulled into our investment management systems includes ratings, momentum, controversy, and carbon data, with the ability to pull in even more. ESG research reports from third party providers evaluate issues considered material to a company and show how the company is managing those issues relative to industry peers.
On a macro basis, we seek to analyze external risks driven by poor ESG quality. This process seeks to constrain potential exposures which might otherwise arise from valuation frameworks while establishing procedures for additional review or exposure management.