Magni is a leader in researching governance of countries and companies. Governance should measure how a country or company regulates themselves and the people who are part of the country or company, as well as how it interacts with its constituents. Countries must demonstrate the ability to create an economic, legal, and regulatory environment where output can grow, investment opportunities are attractive, and investor rights are protected. Companies must demonstrate deep, strong relationships and the transparency to reduce the risk of corruption and malfeasance. This is much more than a “check the box” exercise which most research organizations do. The required information is not easy to find or to incorporate into the investment decision-making process. What is required is a systematic and repeatable technique for collecting and processing data, while organizing it into a format suitable for guiding investment decisions. There are three components of good governance:
Honesty and transparency is the foundation of good governance. Fraud, corruption and other undesirable actions can more easily occur in an opaque circumstance. The greater the demonstrated honesty and transparency, the lower the risk of adverse news harming equity valuations and the greater the opportunity for a positive impact on equity valuations.
Just because rules and regulations are in place does not mean that they are enforced. A key factor in determining good governance is behavior versus self-described intent. This is where Magni differs from most research organizations.
Studies have shown governance is an important consideration to achieving or exceeding benchmarks when constructing portfolios, especially ESG portfolios. Further, research is beginning to be available that proves countries and companies with good governance tend to have better environmental and social performance. Simply, governance can drive environmental, social, and investment performance.