Stockholm (NordSIP) – At the end of November, we had an interesting talk with Ivan Bouillot (pictured), equity fund manager in charge of European equity investments for Banque de Luxembourg Investments (BLI), about investing in family-owned businesses out of an ESG perspective. One of the funds Bouillot manages is the BL-European Family Businesses Fund, which specifically focuses on publicly listed family-owned companies.
Investing in family-owned companies certainly presents a few challenges from an ESG angle, but also some advantages. “Families have strong positions and often a long history in their community and they value the local environment. They take care of their employees and, in general, drive positive change from a social and environmental perspective”, Bouillot points out. “The company is often the only asset for the family. Their time horizon is very long. The family has high respect for its employees. Understandably, transparency and governance around board activities and decisions can sometimes be a weaker point”.
BLI follows a methodology for investing developed over the past two decades. The cornerstones of the investment ideology are simple: only invest in securities that you understand, that are transparent and liquid. They call the principle business-like-investing since they treat their investments as though they are taking a long-term stake in the business.
BLI didn’t sign the UN PRI until July of 2017, “but already 100% of equity investments are ESG integrated”, Bouillot tells us. Few portfolio changes had to be made following the signing in 2017. BLI had no investments in companies with high CO2 emissions, military material and very few holdings in tobacco for example. “Companies producing products that are bad for their customers are difficult to be appreciated as entrepreneurial investors”, he explains.
In Bouillot’s and his firm’s view the ESG framework is an additional tool that will help reach the defined investment objectives. The emergence of in-depth ESG research makes it easier to consider non-financial criteria and further deepen their understanding of targeted companies. Non-financial research can pinpoint risk dimensions of potential investment candidates that would not have been found using only traditional financial research. BLI has taken ESG factors into account for a long time as their own investment process is based on fundamental analysis, on finding companies that can create sustainable value growth and on having close relationships with their portfolio companies. Now they want to increase ESG integration further. Next on the list are proxy-voting and engagement in important issues. To screen for what issues to focus on, BLI uses MSCI-data.
“In many ways, evaluating ESG aspects is as easy with family businesses as for companies with a fragmented shareholder base”, says Bouillot. “Their operations are more transparent and as an analyst or portfolio manager, it is not complicated to get close to them. In my experience, many large, public companies are not revealing all.”
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