The Intersection of Quant and Sustainability
With many investors increasingly focused on Environmental, Social, and Governance “ESG” issues, LACM's forward-looking investment process and adaptive Dynamic Alpha Stock Selection Model seek to capture insights of how new financial metrics related to ESG and sustainability influence a stock’s expected return. In addition to integrating ESG criteria into client portfolios through factors within its proprietary investment model, the Firm also collaborates with clients to provide customized ESG solutions for a more targeted responsible investment approach. Custom offerings include:
- Sustainability Focused
- Climate Considerations
- Impact Oriented
- Exclusionary Screening
LACM's Responsible Investment Solutions Committee (RISC) governs and manages responsible investment activities within the organization, with the objective of developing, overseeing, and promoting ESG integration, keeping abreast of the political and economic landscape with regard to ESG, and educating both internal staff and other investors on the subject.
ESG implementation differs depending on portfolio. Refer to Material Risks at the bottom of this page.
Global Investor Initiatives
LACM’s ESG Journey
2021 Proprietary ESG Model and Climate Opportunities factor incorporated into DA framework as part of the stock selection process.
2021 Joined IIGCC and participated in working groups aligned with Paris Aligned Investing Initiative.
2021 Enhanced ESG Model to incorporate emissions data.
2020 Became a CDP signatory.
2020 Developed climate opportunities factor using machine learning techniques.Please Refer to LACM's Factor Definitions Here
2020 Signed on as a SASB Alliance Member.
2020 Expansion of the Peer Momentum factor to include key ESG issues.
2020 Signed on to Climate Action 100+ Initiative.
2019 Public support of Task Force on Climate-Related Financial Disclosures.
2018 Begin managing integrated sustainability-focused investment strategies.
2018 DA Model factors enhanced to incorporate ESG news events and dynamic ESG peer assessments for all client portfolios.
2017 Firm begins managing carbon-controlled portfolios.
2015 Signed the United Nations supported Principles for Responsible Investing.
Responsible Investing Risk. Applying socially responsible investment constraints limits the number of investment opportunities available, and as a result, portfolio investment returns may differ and even underperform portfolios that are not subject to such constraints. Furthermore, LACM’s proprietary scoring methodology used to identify companies better managing their ESG risks is dependent upon information and data that may be incomplete, inaccurate, or unavailable, which could cause LACM to incorrectly assess a company’s ESG performance. Sustainability considerations of an issuer may not operate as expected when considering ESG issues. Accounts are subject to ESG-related risks, some of which are not captured by LACM's investment process.
Risk of Loss. The potential for profit is accompanied by the possibility of loss. Investors must be prepared to lose all or substantially all of their investment.
Risks of Quantitative Investment Management. There can be no assurance that LACM's investment strategies will be successfully implemented or provide the intended results as unexpected factors may dominate the market during certain periods. Quantitative investing relies on data, hardware, and software for implementation of the investment process and its business operations. To the extent data is incorrect, not available or stale, or software/hardware does not function as planned, results could deviate from expectations, which may negatively affect investment performance. Refer to Item 8 of LACM's ADV Part 2 Brochure for further information about risks here.
Market Disruptions and Geopolitical Risks. Market disruption can be caused by economic, financial or political events and factors. Such disruptions could lead to increased market volatility, reduced liquidity in the securities markets, or significant negative impacts on issuers and the securities markets.
Risk of Errors. The nature of complex quantitative investment management processes is such that errors may be extremely hard to detect, and in some cases an error can go undetected for an extended period of time. Furthermore, each component of the investment process has elements that present the possibility for human error. While LACM has a number of controls designed to assure that the account construction process operates as intended, analytical errors, software errors, development errors, and implementation errors, as well as data errors are inherent risks.
Systems Disruptions and Cybersecurity Risks. The operations of LACM, its counterparties, its service providers, financial market operators, and security issuers are dependent on technology, information, and communication systems. A failure or disruption of any such system or a security breach or cyberattack could significantly disrupt operations, potentially resulting in financial losses to an account, a significant disruption to LACM’s business operations, and create impediments to trading and communications.