Lord Abbett is one of the oldest money management firms in the U.S. and has forged a principles-led, performance-oriented, and purpose-driven culture that is built on people, performance, relationships, and organizational agility—and guided by the values of excellence, responsibility, transparency, and collaboration. As a committed global corporate citizen, we are inspired by our mission: Securing a sustainable future for our clients, our people, and our world.
We take seriously our fiduciary responsibility in helping our clients meet their investment objectives, and we believe sustainability can have a tangible impact on an investment’s risk profile and its ability to generate returns over the long term; therefore, we take Environmental, Social and Governance (“ESG”) factors into consideration in our investment analysis. As a further step in deepening our commitment to investors, Lord Abbett is a signatory to the United Nations-supported Principles for Responsible Investment (PRI). We support the PRI framework in its efforts to foster engagement among investors and promote acceptance of its mission. Our definition of responsible investment is aligned with the PRI definition, which is a strategy and practice to incorporate environmental, social and governance factors in investment decisions and active ownership.
To the extent that individual client investment guidelines for a separate account include a screening/ exclusion policy, we will seek to implement such an approach in accordance with guidelines. We also believe a responsible investment approach can result in positive impact beyond the financial return of a particular security and, thus, we believe that ESG integration can serve investors at large over the long term.
ESG & Investing
Our mission is to deliver superior, long-term, risk-adjusted investment performance across all strategies. We recognize that ESG factors can materially impact investments in the portfolios we manage. Therefore, we seek to analyze and understand ESG factors in order to properly assess both the risk and return potential of all investments. When analyzing the risk/reward profile of a security, we evaluate the impact of ESG risks on enterprise value and, as with any other risks, we seek to ensure that the expected return for every investment is commensurate with those risks. We also expect that consideration of ESG factors will lead to alpha opportunities, as we believe that companies that provide solutions to some of the largest and most pressing ESG issues have the potential to offer higher risk-adjusted returns.
ESG & Engagement
Integration of ESG considerations into our investment processes requires active ownership. Active ownership means engaging directly with company management with the intent of understanding, influencing, or exchanging perspectives on ESG issues. Our pursuit of managing risk effectively is naturally aligned with active ownership, as we seek to identify companies with strong corporate governance and to avoid the adverse effects associated with poor environmental and social practices. Active ownership is promoted by our Investment Stewardship Council (ISC), which provides governance over all forms of ESG engagement. Our engagement activities related to ESG are further defined by our Engagement Policy, our Guidelines for Corporate Governance, and a portion of our Proxy Voting Procedures pertaining to environmental, social and governance issues. In addition, we actively seek opportunities to participate in collaborative engagement activities with other asset owners.
No investing strategy can overcome all market volatility or guarantee future results. ESG investing is subject to the risk that such a strategy may select or exclude securities of certain issuers for reasons other than investment performance considerations which may negatively affect a portfolio's performance. Certain ESG-related investments may be dependent on government policies and subsidies, which are subject to change or elimination.
Authentic integration of ESG considerations into our investment processes requires active ownership. Active ownership means engaging directly with company management with the intent of understanding, influencing, or exchanging perspectives on ESG issues facing a portfolio holding, and including ESG considerations when determining how proxies should be voted. Our Investment Stewardship Council (ISC) will provide governance over all forms of ESG engagement.
Our approach to ESG engagement reflects the principle that engagement can take a variety of forms, with varying levels of intensity. We believe an effective engagement policy must include an escalation process comprised of a series of steps of progressive levels of engagement intensity. At Lord Abbett, the escalation process for ESG engagement activities within the ordinary course of fundamental research and portfolio management will include the following steps:
STEP 1: All analysts and portfolio managers will naturally consider meaningful ESG factors in their assessment of risk and return, and will engage with company management on these issues during the ordinary course of due diligence.
STEP 2: When a security has been identified as having a severe ESG risk or significant ESG controversy, research analysts and portfolio managers have joint responsibility for escalating to the ISC to discuss their proposed approach to engagement. This should occur in advance of purchase.
STEP 3: Where appropriate, the ISC may recommend intensifying engagement, including collaborative engagement through organizations like PRI, CA100+, Ceres, or others.
STEP 4: In extreme circumstances, where there is extreme risk to the firm, the ISC will have the obligation to restrict purchases or force divestitures.
Engagement in proxy voting will include a similar escalation process as described in our Proxy Policy.
Lord Abbett believes that companies with strong corporate governance practices are better positioned for long-term success. Our fundamental research process includes a thorough review of companies’ corporate governance profiles, with a particular focus on the following key factors:
Board of Directors – An independent and effective board is critical to the long-term success of a company. Particular attention is paid to board composition, including:
– Director Independence
– Diversity (background, gender, race, etc.)
– Board Committees and Leadership
Auditors – Independent auditors are necessary to ensure the accuracy and legitimacy of company finances and disclosures.
Capital Structure – Companies should make capital structure and allocation decisions with the goal of maximizing long-term shareholder value.
Compensation – Executive compensation, including equity based incentive plans, should be aligned with long-term shareholder objectives.
Shareholder Rights – Shareholders should be afforded certain rights, including the right to vote, to ensure accountability of the board to the company’s shareholders.
Disclosure – Companies should provide robust public disclosure of relevant information to allow for a full and accurate assessment of a security by investors.
As an active manager, we incorporate each of these corporate governance factors into our fundamental analysis and decision making process.
As a responsible investor, Lord Abbett is committed to supporting and upholding conventions that seek to ban the production of controversial weapons. We, therefore, seek to exclude investment in private or public companies involved in the production, development, sale or maintenance of controversial weapons. For purposes of this Policy, we define controversial weapons as:
Anti-personnel Mines — as defined by the 1997 Ottawa (Mine Ban) Treaty.
Biological and Chemical Weapons — as defined by the 1972 Biological and Toxin Weapons Convention and the 1993 Chemical Weapons Convention.
Cluster Weapons — as defined by the 2008 Convention on Cluster Munitions
Lord Abbett has entered into an agreement with an independent, global, third-party ESG research firm to identify companies deemed to be involved in the production, development sale or maintenance of controversial weapons. This information is supplemented with our own proprietary fundamental research. Implementation of our Controversial Weapons Exclusion Policy is managed by our internal Compliance Department. Investments in companies deemed to be involved in controversial weapons are restricted on a pre-trade basis. This Controversial Weapons Exclusion Policy is applicable to all Lord Abbett Funds domiciled in Europe.
Lord Abbett is committed to complying with all economic sanctions issued by the United States Department of the Treasury – Office of Foreign Assets Control (“OFAC”). Investments in Individuals groups or entities deemed Specially Designated Nationals and, thus, subject to OFAC’s sanction lists, are restricted on a pre-trade basis. These restrictions are applied across all investment portfolios and products.