Deep Involvement at Every Level of the Firm
Engagement for Positive Change
Targeting Our Analysis to Maximize Our Efforts
Leveraging Our Passion for Fundamental Research
ESG Integration at Alger
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ESG in Action:
Integrating ESG Into
Our Investment Process
To begin, please scroll down.
Principles for Responsible Investment
We believe that as long-term investors, assessing companies for environmental, social and governance (ESG) policies and risks can potentially benefit our clients while improving the world. In 2019, we undertook a firmwide initiative to enhance ESG integration in our research and stock selection process. Our research expertise supports our approach to analyzing companies using ESG factors.
Our ESG integration process follows these steps:
ESG Integration at Alger
1. Research
2. Analysis
3. Engagement
4. Monitoring
Leveraging Our Passion for Fundamental Research
The key to incorporating ESG into our research process is the combination of quantitative analysis and fundamental research that our analysts perform to be aware of sustainability and ESG issues.
We provide our analysts with multiple third-party ESG reports and resources along with sell-side research tools. Our standard investment philosophy and approach, which emphasize in-depth, bottom-up fundamental research, represent the additional lens through which analysts view the companies they cover. By marrying these ESG resources with our research, we believe analysts are able to more holistically understand companies’ potential ESG factors and risks.
We believe that ESG analysis will lead to a more in-depth and comprehensive understanding of companies and open up communication with company management regarding ESG considerations.
Chief Executive Officer
Chief Investment Officer
Portfolio Manager
Dan Chung, CFA
QUANTITATIVE RESEARCH
QUALITATIVE RESEARCH
Alger analysts take the following steps for companies that receive ESG scores below a predefined threshold:
In our view, there is a link between potential ESG risks and general underperformance. For example, we believe a company with poor labor practices will likely have high turnover and other human resource issues, including high selling, general and administrative (SG&A) costs. These factors among others can prevent the company from achieving long-term success. This is the first leg of our qualitative analysis.
Targeting Our Analysis to Maximize Our Efforts
Engagement for Positive Change
The next step is an interview with company management to discuss the ESG issues we’ve identified. In our view, this step is the most impactful as this is when we as investors are able to support and effect change within our investment companies. This is the second leg of our qualitative analysis.
• Our analysts customize a list of questions for management, taking into account the
sector and industry of the company to address specific issues.
• We then pose these to company management during an interview and record the
answers in Alger’s internal research database.
To view more specific questions asked, as they relate to each component of ESG, click below.
• Is the company aware of the issues that are negatively impacting its ESG rating?
• Are the issues temporary or permanent?
• What is the company doing to address the issues?
• How many resources are committed to addressing the issues and over what timeframe?
• At what level of the organization are ESG projects managed?
• Is the management team keeping abreast of the ESG developments of its peers?
Examples of some of the general questions that our analysts ask are:
View Governance Questions
• Are there plans to increase board independence?
• Are there plans to change the audit committee
meeting frequency?
View Social Questions
• When does the company plan to implement policies
regarding equal opportunity, anti-bribery ethics or
whistleblower protection policies?
View ENVIRONMENTAL Questions
• Is this company monitoring its greenhouse gas and/or
carbon emissions?
• Are there plans to either improve monitoring or
decrease emissions?
Probability and Magnitude Scale
Probability and Magnitude Scale
All of this information, including the meeting/interview with management, is published to Alger’s internal research database, where it can be shared amongst our analysts and portfolio managers.
Based on the results of the interview, our analysts then rate the company on the probability and magnitude of its potential for positive ESG change.
If a bottling company is looking for a way to reduce plastic use by 60% in the next year and has approved the purchase of a new manufacturing process to do so, what is its potential for change?
We believe the probability for change is near certainty and the magnitude for change is significant. But what if they said instead that they have not done anything about their goal to reduce plastic use?
If the company wanted to reduce plastic but did not do anything yet, the probability may be modest and the magnitude would be no change.
Alger’s goal is to evaluate the prospect of POSITIVE CHANGE–can the company change and is management taking the necessary steps toward change? Our approach to ESG analysis is in line with our investment approach: identify companies undergoing positive change.
If the ESG review changes an analyst’s view of the company (e.g., buy or sell, price target, etc.), he/she must clearly express this in the report.
Deep Involvement at
Every Level of the Firm
We believe that one of the most crucial factors in ESG adoption and success is direct attention from senior management.
Principles for Responsible Investment
The PRI is the world’s leading proponent of responsible investment. It seeks to understand the investment implications of ESG factors and to support its global network of investor signatories in integrating these factors into investment decisions. The principles are based on the concept that ESG issues, such as human rights and climate change, can affect investment performance and should thus be considered in the same vein as traditional financial factors as investment managers seek to fulfill their fiduciary duty.
Since its 2006 launch, the PRI has grown to include over 4,000 signatories encompassing trillions in AUM.
At Alger, our focus on ESG and sustainability issues spans the entire firm, at every level and department. We are committed to being active participants in a more sustainable future.
For more information on the steps we are taking, please visit us at www.alger.com/sustainability.
The views expressed are the views of Fred Alger Management, LLC (FAM) and its affiliates as of September 2021. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. Holdings and sector allocations are subject to change.
Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness such as COVID-19 or other public health issues, recessions, or other events could have a significant impact on investments. Industrial companies may be affected by supply and demand both for their specific product or service and for industrial sector products in general. Government regulation, world events, exchange rates and economic conditions, technological developments and liabilities for environmental damage and general civil liabilities will likewise affect the performance of these companies. The environmental, social and governance investment criteria may limit the number of investment opportunities available, and as a result, returns may be lower than vehicles not subject to such considerations. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.
Important Information for US Investors: This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund or ETF shares. Fred Alger & Company, LLC serves as distributor of the Alger mutual funds.
Important Information for UK and EU Investors: This material is directed at investment professionals and qualified investors (as defined by MiFID/FCA regulations). It is for information purposes only and has been prepared and is made available for the benefit investors. This material does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorised or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees.
The original recipient is solely responsible for any actions in further distributing this material and should be satisfied in doing so that there is no breach of local legislation or regulation.
Certain products may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to such persons or countries.
Alger Management, Ltd. (company house number 8634056, domiciled at 78 Brook Street, London W1K 5EF, UK) is authorised and regulated by the Financial Conduct Authority, for the distribution of regulated financial products and services. FAM and/or Weatherbie Capital, LLC, U.S. registered investment advisors, serve as subportfolio manager to financial products distributed by Alger Management, Ltd.
Alger Group Holdings, LLC (parent company of FAM and Alger Management, Ltd.), FAM, and Fred Alger & Company, LLC are not an authorized person for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (“FSMA”) and this material has not been approved by an authorized person for the purposes of Section 21(2)(b) of the FSMA.
Important information for Investors in Israel: This material is provided in Israel only to investors of the type listed in the first schedule of the Securities Law, 1968 (the "Securities Law") and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995. The Fund units will not be sold to investors who are not of the type listed in the first schedule of the Securities Law.
Sustainalytics is an independent ESG and corporate governance research, ratings, and analysis firm. The Sustainalytics’ ESG Risk Ratings are categorized across five risk levels: negligible, low, medium, high and severe. Ratings scale is from 0-100, with 100 being the most severe. PRI is an independent organization supported by the United Nations that promotes the integration of ESG issues into investment decision making and ownership practices. As a signatory, a firm is required to complete a detailed questionnaire with information about their sustainable investment practices in manager selection, securities research, engagement with shareholders, proxy voting and other areas. Each answer is awarded 0, 1, 2 or 3 points by PRI’s assessment team based on key activities or practices that PRI deems favorable. The total points awarded within each section of the report determines the recipient’s letter grade. The highest letter grade is A+ and the lowest letter grade is E for each section.
• If there is an event at the company that affects its ESG profile, the review process is triggered and the analyst starts over
with the analysis and interview with management.
• If the company does not improve, we follow up. If the company does improve, we refocus our attention on those companies
that are not improving.
1. They conduct a deep dive examination into the businesses’ ESG factors.
2. Analysts address these issues with management.
3. They then synchronize their research with the intensive work they are already performing to analyze potential company
and stock performance.
A primary third-party source that we utilize to understand ESG factors is Sustainalytics. When a company we own or have an interest in owning receives a poor Sustainalytics score, we launch an ESG review. This includes a formal writeup in which we identify the drivers of the ESG score, taking industry and sector-specific risks into account (e.g., privacy concerns for digital companies, recall concerns for health care companies).
At Alger, our focus on ESG and sustainability issues spans the entire firm, at every level and department. We are committed to being active participants in a more sustainable future.
• At Alger, an ESG Steering Committee, which includes Chief Executive Officer and
Chief Investment Officer Dan Chung, as well as two other senior investment professionals
and the Chief Operating Officer, meets on a quarterly basis to review ESG rankings and activities
within the firm.
• Most importantly, the team reviews the firm’s overall efforts to increase awareness of the Principles
of Responsible Investment (PRI) and suggests additional steps to further increase awareness.
Click the icons below to discover our research methods.
• Data research
• Reports
• Scoring
• Meetings with companies
• ESG surverys/questions
• Follow-ups to evaluate
changes
