When it's time to engage or time to divest: our stewardship explained
Owning a stake in a company means we can address possible risks to company performance while engendering positive impact. If there’s reason for concern, our first step is to work with the company in addressing the issue rather than simply divesting.
As an active and responsible investor, we hold the companies in which we invest to certain standards. The first step of our investment process is undertaking a rigorous screening to determine which companies are suitable to invest in. Hereafter, we take the practice of ethical investment one step further with active engagement. We believe it is this continued engagement with our portfolio holdings that is instrumental to our success at ensuring better investments for a better world.
If companies are controversial, why not just divest right away?
Owning a stake in a company means we can address possible risks to company performance while engendering positive impact. If there’s reason for concern, our first step is to work with the company in addressing the issue rather than simply divesting. Why? We strive to make our holdings aware of our stance on the issue, offer recommendations for change with the overall goal of seeing them take accountability and change behaviour.
If enough investors collectively raise concerns, greater positive impact can be made. This is also why we value industry collaborations made possible through organisations such as Climate Action 100+, Consumer group CHOICE and Investors against Slavery and Trafficking (IAST).
While widespread shareholder divestment can send a powerful message to the market and has a role to play, it is through on-going dialogue with our investee companies that we believe distinctive areas for improvement can be targeted. Through engagement we can help corporate teams establish acceptable roadmaps and provide perspective on general market trends and expectations.
Ethics and impact manager Désirée Lucchese notes: “Shareholder value is a long term concept” and by aiming to preserve existing value and enhance the potential for future value creation of our portfolio holdings, we work towards generating better performance for our clients.
When engagement doesn’t deliver a satisfactory demonstration of outcomes over a minimum of one year time, we go on to then consider co-filing a resolution with peer investors or industry partners and ultimately consider the exclusion of the company from our investable universe.
How we engage
When our research uncovers companies held in our portfolios that have become involved in unacceptable activities or practices, our preference is to firstly initiate a process of direct engagement in the form of calls, face-to-face meetings or written letters.
Our investment team continually evaluates the companies in which we’re invested. They do so by tracking changes in their core practices, environmental, social and governance (ESG) related controversy alerts and media notifications, while considering the macro economic outlook.
Using tools such MSCI’s ESG Research’s screening and portfolio analytics, ISS SRI’s governance insights and other broker research, in addition to an independent ethical advisory panel (EAP) of recognised industry experts, the team reviews both our ethical position or arising concerns.
Adding to this, we’ve developed an internal engagement checklist as a guide for critical ‘core’ and ‘sectorally relevant’ questions that we need to address.
These core questions include engaging with all companies on matters pertaining to;
• Gender diversity;
• Human rights/modern slavery;
• Aboriginal/native title rights;
• Corporate governance; and
• Climate risk.
We also have key engagement questions prioritised by sector. These include matters pertaining to companies within their specific business models;
• Corporate behaviour;
• Human capital development;
• Labour management;
• Health & safety;
• Raw materials sourcing;
• Chemical safety;
• Water Stress; and
• Toxic emissions and waste.
Our key areas of focus
Ideally we would engage with companies on all areas of concern and at all levels, but we believe we can foster greater impact by keeping our engagement initiatives focused.
Below are our key areas of focus and engagement themes, which reflect our ethical investment policy and underpin our commitment to investing with purpose.
We believe that encouraging corporate improvements will lead to greater outcomes for stakeholders, our investors and the broader market as a whole.
To learn more about our investment process including our active engagement, please get in touch today.
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