In advocating for an integrated approach, we argue that all material factors that could influence a company’s valuation – as determined by its future cash generation and shareholder returns – should be rigorously analyzed and incorporated as part of an in-depth research process. Considerations stemming from environmental, social, and governance concerns must, where material, be included in this process. Taken not in aggregate but as individual concerns, they can be understood in the context of the company’s specific financial and operational situation.
The result of this risk-based approach is that, much like any other strategic, financial or regulatory risk incorporated into an equity valuation, the presence of material ESG-based risks need not preclude investment, provided that they are adequately discounted in the market price.
Across all of Mondrian’s equity investment products, the research process is driven by extensive, bottom-up fundamental company analysis which includes a comprehensive program of meeting with representatives from current and prospective holdings. We believe that the value of any equity security is equal to the present value of its future cash flows to the investor, which are primarily dividends. The principal focus of our investment professionals is constructing long-term forecasts for these cash flows utilizing our dividend discount methodology.