Environment, Social, and Governance Policy
Strategic Overview
At Oberweis Asset Management, we employ fundamental analysis in making our investment decisions. As part of our fiduciary duty to clients, we seek to enhance returns and reduce risk. Our process is designed to analyze businesses from several angles, providing us a well-rounded understanding of a company’s risks and opportunities. Ultimately, we aim to assess whether the business is durable and capable of sustaining high returns on capital over time. In this regard, we believe that responsible investment (RI) and environmental, social, and governance (ESG) issues can potentially affect the risk and return profiles of our investments and, therefore, we consider ESG issues in our fundamental analysis. As a firm, we believe in the following guiding principles for the process of ESG assessment:
- Effective corporate governance is essential to long-term value creation
- Business operations and planning should consider the risks and impacts to all stakeholders
- Effective policies and procedures help to mitigate ESG risk
- Transparency drives process improvement over time
Oberweis believes that governance, environmental and social issues should generally be considered as part of the overall evaluation of a potential investment. The relevance and materiality vary by company, industry, and country. Accordingly, the implementation of ESG factors into each strategy will vary based on the portfolio manager’s judgment on the materiality and availability of information.
Governance: Pertains to equitable distribution of value creation to stakeholders through transparency, accounting practices, and appropriate oversight
- Adoption of best-practices with respect to accounting policies, board structure, and internal control
- Adoption of a corporate culture and best-practices to promote prevention of bribery and corruption
Environmental: Pertains to operational sustainability, off-balance sheet risk from environmental externalities, and potential risk associated with climate change
- Compliance with local regulations and best practices for resource management
- Assessment and understanding of potential environmental risks
Social: Pertains to human rights, fair labor practices, and privacy
- Corporate culture that fosters ethical work environments and fair treatment of employees
- A “safety first” production culture for employees and stakeholders
ESG Integration
Oberweis believes there are multiple dimensions to ESG integration. We consider a company’s exposure to and management of ESG risks and opportunities, rather than focusing on only the risks. For example, banks could mitigate risk by limiting their financing of companies facing scrutiny over their impact on the environment. However, they could also increase their opportunity by improving access to their products in under-penetrated segments and markets. By evaluating both the ESG risks and opportunities, Oberweis develops a deep understanding of a company’s ability to create long-term shareholder value. As part of our due diligence process, Oberweis uses external ESG research from MSCI and Bloomberg, alongside company-disclosed materials. Once complete, our portfolio managers have discretion as to how to incorporate the risks and opportunities into the investment profile of a given security. Material ESG “red-flag” risks encountered during our due diligence process will increase the priority and importance of the ESG considerations and could lead to exclusion. Generally, we believe that ESG considerations should not limit the investable universe, but rather help us hone our assessment of a company’s sustainable challenges and potential competitive advantages.
Company Engagement & Escalation
As active investors with strategies that generally have a smaller capitalization bias, we believe that engagement and dialogue with potential and current holdings is important in evaluating companies’ ESG profiles. ESG-related disclosure is often not robust in the small-cap universe, especially within emerging markets. As such, when relevant, we interview management to assess the materiality of ESG issues to their businesses. If questions or concerns related to a holding’s ESG practices arise from our ESG due diligence, our portfolio managers have discretion to engage with management to understand how they are addressing ESG factors in their business. We do not generally seek to be activist investors, but rather view ESG engagement as one tool to better understand the risks and opportunities faced by our portfolio holdings. In rare circumstances, after considering all relevant factors, portfolio managers have discretion to act on ESG risks through divestment if they decide that the ESG risks facing a company are so critical that the risk/return profile is no longer attractive.
Proxy Voting
At Oberweis, we believe proxy voting is another way to encourage appropriate corporate governance and policies. In conjunction with the fiduciary obligation to our clients, we have constructed a proxy voting policy intended to maximize shareholder value, and where relevant, address financially-material ESG matters. We have retained the services of an industry-leading proxy voting provider, who casts votes taking into consideration a range of factors material to share and stakeholder stewardship.
Guiding Frameworks & Industry Affiliations
- Oberweis is a signatory to the UN Principles of Responsible Investing (UNPRI), a broad international network of ESG-conscious investors. https://www.unpri.org/
- Oberweis publicly supports The Paris Agreement, an international treaty on climate change adopted by 196 parties. Its goal is to limit global warming. https://unfccc.int/
- Oberweis publicly supports the Task Force on Climate-Related Financial Disclosures (TCFD), which seeks to improve and increase reporting of climate-related financial information. https://www.fsb-tcfd.org/
Policy Scope
ESG integration is overseen by an ESG Committee comprised of senior staff. Our ESG efforts are audited annually by Oberweis’s compliance team as part of our annual compliance program review.
