Georgia O’Keeffe, Untitled (From the River), c.1946
© 2023 Georgia O’Keeffe Museum / Artists Rights Society (ARS), New York


ESG has always been part of our Sustainable Growth Investment Philosophy.

Fayez Sarofim & Co.’s Sustainable Growth investment philosophy is centered on identifying companies capable of achieving long-term and sustainable earnings growth. Our investment process involves a deeply researched and differentiated understanding of what we believe to be all factors impacting a company’s ability to compound earnings growth. Those factors have always included environmental, social, and governance (ESG) factors, though this term only has recently permeated mainstream consciousness.

Because we believe that ESG opportunities and risks are inextricably linked to our long-term oriented, bottom-up fundamental analysis, we have always believed that our investment approach must rely on proprietary ESG factor research. This must be reflected in our financial analysis, and in a comparable and consistent manner. We have implemented a formal oversight of the process, which includes our Head of Investment Risk, and our Director of ESG, who is responsible to oversee research, ratings, and integration. Additionally, we became a signatory to the UN Principles for Responsible Investment in 2020.

ESG is organically integrated into our investment process

Our research process is rooted in a rigorous bottom-up fundamental analysis of a company’s strategic positioning, financial strength, growth prospects, profit generation, and overall stability. In addition, our long-term orientation requires us to consider factors that could disrupt long-term growth such as reputational issues, the behavior and compensation of company boards, treatment of the wider community, impact on the environment, and working conditions for employees. As a result, ESG factor research has historically been organically incorporated into our bottom-up research process and, therefore, performed by the analysts who best know the companies.

our internally developed esg factor research includes key issue identification, weighting and scoring

We have developed a proprietary ESG factor scoring system to ensure consistency and comparability when we assess exposure, degree of management and materiality to profitability.  Our ESG factor research begins with key issue identification – focusing on issues that are likely to affect a company’s profit potential, erode or enhance their competitive advantage, or impact the ultimate value of the enterprise. Once key issues have been identified, we weight the specific issues, with the main determinant being an issue’s potential impact on long-term financial performance. Timing is another factor that is considered in the weighting decision. Near-term issues are assigned a higher risk weighting as they often leave management teams with less flexibility to mitigate the risk.