Such strategies must be convincing, Bytheway reaffirms. “This is about whether companies are doing what they say they do in their policies, and how they do it.” These policies are seen as a guard against future extra-financial risks to business performance. The impact of an emissions-trading system, scheduled to be implemented by 2010, is being assessed by CFS GAM.

Neil Cochrane, CFS GAM global head of business development and deputy chief executive, says the manager is concerned about some carbon-intensive businesses’ capacities to absorb the additional costs that will surface under the system. “If you don’t take that into consideration, then you haven’t done your job. It’s a part of investment analysis,” Cochrane says. “Companies will make more money out of being more efficient.” Cochrane says the manager, which is a signatory to the United Nations Principles of Responsible Investment (UN PRI), and has recently engaged Innovest to assist with the implementation of the principles, applies no default measure of sustainability to companies.

He says the researcher has been hired to broaden the views reached by CFS GAM’s internal analytical teams. “These are complex issues, and one has to be careful to not make them a personal interpretation.” Integrating extra-financial analysis into stock selection is a continual process, Cochrane says, and involves engagement, rather than screening out companies that disregard ESG values. As a result of this mediation process, which is encouraged by the UN PRI, the manager’s portfolios should not be transformed radically. “PRI can add value. Screening out companies doesn’t add value,” Cochrane says.