At DSP Asset Managers (DSPAM), we are committed to sustainability and responsible investing. We understand the importance of Environmental, Social, and Governance (ESG) factors in creating long-term value for our clients and society as a whole.
In 2021, we made our commitments to integrating ESG considerations into our investment decisions public by signing to the United Nations Principles for Responsible Investments (UN PRI). The following year, we formally adopted a Responsible Investment policy that outlines our two-pronged approach based on ESG integration and active ownership. We are proud to share that in 2023, we have become a signatory to Climate Action 100+, further demonstrating our commitment to sustainability. At DSPAM, we strive to generate sustainable investment returns for our clients while integrating ESG factors in our investment decisions. We believe that active engagement and monitoring of investee companies are crucial to achieving long-term success and contributing to sustainable development. As active investors in India with a focus on long-term investing, we believe understanding the corporate governance and sustainability framework of our investee companies in addition to their operations and strategy is our fiduciary duty.
ESG Investment Process
ESG analysis forms an integral part of the due diligence on potential investments when evaluating an investment opportunity. We integrate ESG factors in investment process using the ESG framework.
Investee company is analysed using the ESG Framework. The areas of concern and opportunities are researched in detail with insights from the sector analyst.
The analyst or portfolio manager creates a template with the rationale for engagement with the investee company. These can include data requests, clarifications or recommendations on sustainability performance. Following which, a meeting is set up to facilitate dialogue with the investee company. This allows us to put forward our expectations related to material ESG criteria and support companies in enhancing their sustainability performance.
The analyst or portfolio manager record engagement outcomes and suggest next steps or monitoring.
Our Framework: Approach to ESG Analysis
We have a framework to measure ESG performance of companies in a systematic way giving a common language for comparing the ESG profiles of investee companies and is designed specifically to help portfolio managers and analysts integrate ESG factors into their investment process. We analyse a focused set of criteria and analytical points depending on materiality. We favour performance over policies. Since a large part of ESG analysis involves reviewing unstructured data and intangibles, we review both qualitative and quantitative analytical points with equal significance.
Some of the ESG criteria which we consider in our investment decision are as follows:
- Environmental concerns due to local resistance, non-compliances, gross negligence
- Climate risk and energy
- Circular operations
- Water, waste and wastewater
- Supplier engagement
- Environmentally sustainable products/services pipeline
- Social concerns due to local resistance, working conditions, human rights
- Decent work
- Diversity & Inclusion
- Human capital management
- Future skills
- Related party structures
- Board integrity
- Conflict of interests
- Promoters pledging
- Audit quality
- Credit rating parameters
Our Engagement: Spearheaded by our Investment Team
DSP’s Equity Investment team is responsible for ESG integration. The Head and Co-Head of Equities have oversight and accountability for the implementation of Responsible Investment practices. Portfolio managers, investment strategists and research analysts, including the ESG analyst and Forensic analyst are responsible for implementation of the ESG related policies and procedures.
We strive to improve ESG risk management, promote positive change, and safeguard the long-term interests of our investors. One way we achieve this is by engaging with the companies we invest in, which is also an essential part of our stewardship activities. We leverage our influence as investors to bring about measurable and positive change. Our engagement interactions are aimed at facilitating open dialogues, leading to targeted and time-sensitive outcomes that can help inform our investment decisions. Our Equity Investment team actively engages with investee companies and key stakeholders such as CXOs, board members, investor relations teams, and sustainability analysts on ESG topics. We recognize the benefits of multi-year engagements and follow an approach of open dialogue on key ESG criteria. Our engagement process involves seeking clarifications or additional information, supporting the investee company in understanding the issue at hand, suggesting best practices, and setting up guardrails and monitoring outcomes in severe cases. We also actively vote on company resolutions and work with a proxy-voting firm to support these efforts.