Not every ‘good’ company is a good investment.
We never assume that a compelling mission, strong ESG practices or well-intentioned sustainability commitments automatically translate into long-term value – or real-world impact. And we go to great lengths to verify claims before we invest.
So what makes a company investable when you’re focused on creating a values-aligned portfolio?
In ESG investing, a company is considered investable when it meets defined environmental, social and governance criteria while also demonstrating financial resilience and responsible risk management.
And at Genus, getting those insights lies in data, discipline and depth of research. We look beyond surface-level ESG investing information to understand how each company we invest in actually operates, how it manages risk and whether its business model is aligned with environmental and social considerations that we believe may support long-term sustainability outcomes.
“A company can score well on an ESG rating by having strong policies on paper, without fully implementing them across the business,” says James Dick, Senior Sustainable Investment Associate at Genus. “That’s why we look deeper – examining how companies are actually operating to understand where real change is happening, not just where risk is being managed.”
To do that, we use a rigorous, data-driven framework to research and identify companies that are not only aligned with our values (and our clients’ values), but also positioned to deliver resilient, long-term outcomes in a complex and rapidly changing world.
For investors who want their capital to do more than simply participate in markets, here’s what happens before dollars are deployed.
How we define an investable company in ESG investing
We start with what’s non-negotiable: the companies we invest in must align their business models with long-term economic, environmental or societal outcomes. On top of that we layer a rigorous assessment of how they generate value, manage risk and position themselves for the future.
“As a quantitative investment firm, we can look at thousands of companies at once,” says James Dick, Senior Sustainable Investment Associate at Genus. “We’ve developed models that allow us to take a holistic view of the portfolio and invest strategically in different countries, industries, and themes. But when we look at it on a company level, we can drill down further to look at performance based on ESG factors too.”
This approach creates our first filter – and some companies never make it into consideration because their activities, practices or governance structures are fundamentally misaligned.
“For us, all companies that we invest in have passed ESG screenings,” Dick says. “Then we look at the fundamentals alongside the ESG criteria. We look at how their revenue is actually generating impact.”
How we evaluate companies using ESG criteria – and who makes the cut
Once a company clears our initial ESG screen, we evaluate it against a defined set of considerations. These factors help us understand not just the company’s intentions, but the risks it carries and the outcomes it supports.
- ESG risk ratings
We use established ESG ratings, provided by MSCI ESG Research, as risk measures, built from a broad set of underlying ESG data points. These help us compare companies consistently and identify areas of strength, weakness or concern. - Carbon emissions and operational efficiency
This includes Scope 1 and Scope 2 carbon emissions, as well as emissions intensity – how much a company emits relative to the revenue it generates. This allows us to assess performance fairly across companies of different sizes. - Biodiversity, sourcing and natural resource use
We examine where and how key inputs are sourced, including traceability of materials, exposure to deforestation risks (such as palm oil production), biodiversity risks and how responsibly a company manages water use and pollution. - Social impact and controversy exposure
We screen for major controversies, including potential impacts on Indigenous communities. We also consider how companies address gender inequality through hiring, promotion and support for marginalized groups. - Alignment with global sustainability goals
We assess how many UN Sustainable Development Goals a company or fund meaningfully aligns with, as an indicator of the breadth of its positive contribution
- Governance structure and oversight
This includes board composition and independence, representation of women and diverse directors, and governance structures that support accountability, long-term strategy and effective investor oversight rather than concentrated control.
Only companies that demonstrate strength across these areas are able to be considered for investment.
How ESG investments are monitored over time
Once a company becomes part of a Genus portfolio, it’s continuously monitored using the same data-driven framework that informed its inclusion in the first place. “Every month we rebalance our funds, so if there’s new controversy data, that company will be divested from,” Dick says.
Because our ESG data and market information are updated regularly and integrated into our models, we’re able to stay current on changes in company behaviour, emerging risks or new information that could affect long-term outcomes – and respond quickly when companies no longer meet our standards, reallocating capital toward those that continue to align with our clients’ values and goals.
“We rely on data and research from third-party ESG research providers such as MSCI ESG Research, Sustainalytics and Impact Cubed, alongside our internal analysis,” Dick says. “And we’re not just removing ‘bad’ companies, we’re also always on the lookout for companies that are improving and increasing their impact. The thing about being a quantitative firm is that there is a lot of portfolio turnover. We can be in and out of companies every month and can change whole portfolios every year,“ Dick says.
It’s a process that recognizes that companies evolve, conditions change and capital should move accordingly.
And for our clients, it means ESG portfolios that are actively aligned with both their values and their long-term financial goals.
If you’re interested in exploring impact investing, speak with a Genus advisor about our values-based investment services.
References:
ESG Ratings | MSCI. (n.d.). https://www.msci.com/data-and-analytics/sustainability-solutions/esg-ratings
This document is provided for general information purposes only and is not a substitute for professional advice. It does not constitute investment, legal, accounting, tax, or other advice or recommendations, nor should it be relied upon as the basis for any decision. Readers should seek specific professional guidance before making financial” or investment decisions. Certain information herein is based on third-party sources believed to be reliable, but its accuracy and completeness are not guaranteed. Past performance is not a guarantee of future results.
