Longfellow Investment Management | LIM

Our research team has narrowed a list of industry-specific sustainability drivers that we believe are material to the creditworthiness of specific borrowers and are analyzed within our corporate credit investment process:

Environmental Considerations

Ignoring physical and transition risks associated with climate change can increase costs to comply with new regulations or cause business disruptions from extreme weather events. Inefficient energy and water use increases the volatility of input costs to business processes. Improper waste management and other forms of pollution may impact communities or ecosystems, which can increase contingent liabilities and detract from brand value and trust.

Social & Human Capital Considerations

Poor human capital management can indicate lower productivity, lower innovation capacity, and higher risk of discriminatory practices. Neglecting community engagement and restricting access and affordability can harm a company’s brand image. Human rights controversies can cause customer and investor backlash. Lapses in product safety or data privacy and cybersecurity may cause contingent liabilities and negatively affect brand value.

Governance Considerations

Unreliable financial reporting or a lack of useful disclosures creates risks to understanding creditworthiness. Poor board composition including a lack of independence or diversity can inhibit strategic decision making. Misaligned executive compensation raises the risk of management decisions that are not in investors’ best interests. Business ethics issues can create legal liabilities and be harmful to brand value.

LIM Perspective: Climate Transition Risk

Climate change presents a broad range of challenges across all asset classes and industries. While the scope of the problem is too large and complex to address in a single year, incorporating climate risk analysis and active engagement reflect a good starting point that can be enhanced over time. In our view, policymakers’ growing response to climate change could lead to significant financial risks for companies that are slow to adopt transition strategies to align with a low carbon economy.

Issuers have raced to set carbon emissions reduction targets in recent years to demonstrate their alignment with global decarbonization goals. However, companies are often unclear about how they will reach targets and may rely on unproven technologies and insufficient investment. We will remain diligent in our analysis of regulatory policy and technological advancements that may create risks or opportunities across client portfolios.

LIM Perspective: Inclusion, Diversity, Equity, and Access (IDEA)

IDEA is an increasingly relevant issue for companies to consider across all industries. In our view, a lack of diverse opinions can lead to groupthink which harms an organization’s decision-making ability. Additionally, adequate diversity and an inclusive environment have been linked to higher employee productivity and lower risk of litigation related to poor human rights practices and workplace harassment.

Quantitative IDEA metrics are currently reported by businesses in various ways. Our process also seeks to also understand more qualitative details around company policies that integrate IDEA into recruiting, training, and retention. This helps provide insight into management’s attitude and commitment to its employees and into IDEA more broadly.

LIM ESG Scoring Framework

Environmental Considerations

Social & Human Capital Considerations

Governance Considerations

LIM Perspective: Climate Transition Risk

Factors we consider in our analysis:

Questions we may ask issuers:

LIM Perspective: Inclusion, Diversity, Equity, and Access (IDEA)

Factors we consider in our analysis:

Questions we may ask issuers:

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