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Impax Asset Management

PRI reporting framework 2017

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You are in Direct - Listed Equity Active Ownership » Engagement

Engagement

Overview

LEA 01. Description of approach to engagement

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate whether your organisation has a formal engagement policy.

01.2. Indicate what your engagement policy covers:

          Engagement processes and policies for on-going monitoring and escalation.
        

01.4. Provide a brief overview of your organization’s approach to engagement

Engagement is an important part of our ESG analysis and the investment process more broadly. Impax is a fundament-driven investor with a long-term investment horizon. We engage with companies when we have identified specific ESG-issues or concerns, when we require further information regarding an ESG-aspect (that is not publicly disclosed) or in order to encourage improvement in company ESG policies, processes and disclosures. We engage individually and together with other investors.

Engagement allows us to:

  • Manage risks; proactively identify and mitigate issues
  • Enhance company analysis; how companies respond to engagement is highly informative and this information is included in our ESG-analysis and our proprietary ESG-scoring of our companies
  • Strengthen our investee companies over time; improving transparency, quality, processes and resilience

Our engagement work can be divided into the following types:

  • Engagement with smaller companies
  • Longer-term strategic engagement priorities
  • Collaborative engagement
  • Pre- or post AGM engagement
  • Company due diligence & monitoring

We engage as part of our regular meetings with companies or through additional conference calls, meetings or emails or as part of joint communications with the investment community.

We maintain an engagement database detailing engagement issues, timings, outcomes and current status. It is reviewed regularly for unresolved issues requiring follow-up.

01.5. Additional information [optional]


LEA 02. Reasoning for interaction on ESG issues

02.1. Indicate the method of engagement, giving reasons for the interaction.

Type of engagement

Reason for interaction

Individual/Internal staff engagements

          Monitoring, due diligence and escalation
        

Collaborative engagements

          Escalation of an issue
        

Service provider engagements

02.2. Additional information. [Optional]


Process

Process for engagements run internally

LEA 03. Process for identifying and prioritising engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate whether your organisation has a formal process for identifying and prioritising engagement activities carried out by internal staff.

03.2. Describe the criteria used to identify and prioritise engagement activities carried out by internal staff.

other description

          Monitoring (ESG-analysis), due diligence, escalation.
        

03.3. Additional information. [Optional]

Our engagement work can be divided into the following types:

1. Engagement with smaller companies

We focus on smaller companies to strengthen governance structures, introduce sustainability policies, processes and disclosures, for companies to manage effectively their most material ESG-risks. Impax has developed a proprietary cost-effective framework to advice companies on how to develop robust, material and cost-effective sustainability reporting.

2. Longer-term strategic engagement priorities

Every year we assess and state the engagement priorities for the next 12 months, based on market developments and emerging ESG and sustainability issues that we have identified and that are relevant and material for our companies. We then identify the companies most exposed to the issues in question and focus our engagement on those companies. While we assess these priorities every year, they may not change annually; they are often of long-term nature.

3. Collaborative engagement

We regularly engage on ESG issues, specific sectors and companies together with other investors and partners with or without a lead or coordination from responsible investment organisations. These are collaborative engagements where outreach may particularly benefit from a larger group of shareholder involvement or in cases where an issue is being escalated.

4. Pre- or post AGM engagement

We engage with many of our companies either before or after AGM and proxy voting. It is predominantly related to governance and issues such as election of directors, board structures and management remuneration. Where we vote against an AGM resolution, we aim at informing the company before the AGM, or at least after the AGM.

5. Company due diligence & monitoring

As part of our 10-step company analysis, we often engage with companies to find information and clarification regarding specific governance issues, environmental and/or social risks that have not been clearly addressed, explained or disclosed by the company. This is part of our on-going monitoring of our companies.

 

Company monitoring and escalation

The Impax investment team has established internal processes and uses various external research tools to monitor our investee companies regarding their financial, operational, strategic, sustainability and governance developments that highlight possible areas of concerns and priorities for engagement.

Where material concerns or anomalies at an investee company have been confirmed, the Impax investment team will intervene and escalate matters in order to mitigate risks and preserve shareholder value.

We will immediately contact the investee company management team and where relevant and possible members of the company board. Typically, we would request a conference call with the management team, to discuss the concern in detail. We would also contact the company’s brokers for information.

If the investee company is unresponsive to engagement or we view, upon clarification with the management team, that the company is taking an approach that is significantly increasing shareholder risks and the company is unwilling to consider less risky approaches, we would escalate our activities as follows:

  • Intervene or engage together with other institutions on the issue
  • Feeding back to company’s advisors especially regarding voting matters
  • Highlighting the issue and/or joint-engaging regarding the issue through institutional platforms like the UN PRI
  • Filing or co-filing resolutions at General Meetings

We believe that we can be more constructive and ultimately in the long-term more influential with our investee companies, if we maintain good relations and where possible interact and engage directly with the company on specific concerns. Public statements or filing resolutions would be last resort activities in exceptional circumstances.

Ultimately, if the interventions were not successful and we consider that the risk profile of the company has significantly deteriorated or company strategy or governance structures have altered, to a degree where the return outlook and the company strategy and quality no longer meet our expectations, the company would be excluded from our investable universe and/or sold.


LEA 04. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

04.1. Indicate if you define specific objectives for your engagement activities.

04.2. Indicate if you monitor the actions that companies take following your engagements.

04.3. Indicate whether your organisation defines milestones and goals for engagement activities carried out by internal staff.

04.4. Indicate if you do any of the following to monitor and evaluate the progress of your engagement activities carried out by internal staff.

04.5. Additional information. [Optional]


Process for engagements conducted via collaborations

LEA 05. Process for identifying and prioritising collaborative engagement

New selection options have been added to this indicator. Please review your prefilled responses carefully.

05.1. Indicate whether your organisation has a formal process for identifying and prioritising collaborative engagements

05.2. Describe the criteria used to identify and prioritise collaborative engagements

05.3. Additional information [Optional]

Collaborative engagements and joint-representations with other institutions and investors are an important part of Impax’s engagement work. We initiate collaborative engagements where the engagement and outreach may particularly benefit from a larger group of shareholder involvement or in cases where an issue is being escalated. Collaborative engagements can also be preferred and effective when approaching an issue or risk that is affecting a larger group of companies; a sector-level engagement.    


LEA 06. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

06.1. Indicate if you define specific objectives for your engagement activities carried out collaboratively.

06.2. Indicate if you monitor the actions companies take following your collaborative engagements.

06.3. Indicate whether your organisation defines milestones and goals related to engagement activities carried out via collaborations.

06.4. Indicate if you do any of the following to monitor and evaluate the progress of your collaborative engagement activities.

06.5. Additional information. [Optional]

We maintain an engagement database where the engagement issues, actions, timings and outcomes are detailed. We review the database regularly and if an issue remains unresolved, we follow-up with the company.

However, for more general nature e.g. sector-level collaborative ESG-engagements, we do not always monitor and evaluate to the same degree as we do regarding company engagements of specific issues.


General processes for all three groups of engagers

LEA 09. Share insights from engagements with internal/external managers

09.1. Indicate if insights gained from your engagements are shared with your internal or external investment managers.

Type of engagement

Insights shared

Individual/Internal staff engagements

Collaborative engagements

09.2. Additional information. [Optional]

Engagement is an important part of our ESG-analysis, which in itself is an integral part of the investment process. Engagement outcomes are important in investment decisions and need to be shared within the investment team. "Engagement" is a standing agenda item during our weekly Investment Committee meetings and engagements, both individual and collaborative, including the issues, actions, status and next steps are discussed and minuted.


LEA 10. Tracking number of engagements

10.1. Indicate if you track the number of engagements your organisation participates in.

Type of engagement
Tracking engagements

Individual / Internal staff engagements

Collaborative engagements

10.2. Additional information. [OPTIONAL]

We maintain an engagement database where the engagement issues, actions, timings, outcomes and next steps are detailed. We review the database regularly and if an issue remains unresolved, we follow-up with the company in question.

We also disclose publically the number and types of engagements done during a year.


Outputs and outcomes

LEA 11. Number of companies engaged with, intensity of engagement and effort

11.1. Indicate the amount of your listed equities portfolio with which your organisation engaged during the reporting year.

Number of companies engaged

(avoid double counting, see explanatory notes)

Proportion (to the nearest 5%)
Specify the basis on which this percentage is calculated

Individual / Internal staff engagements

28 Number of companies engaged
13 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

Collaborative engagements

29
13 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

11.2. Indicate the proportion of engagements that involved multiple, substantive and detailed discussions or interactions with a company during the reporting year relating to ESG issue.

Type of engagement

% Comprehensive engagements

 

 

Individual / Internal staff engagements

 

 

Collaborative engagements

11.3. Indicate the percentage of your collaborative engagements for which you were a leading organisation during the reporting year.

Type of engagement

% Leading role

 

 

Collaborative engagements

11.5. Additional information. [Optional]

In 2016 our engagement work divided as follows:

  • Engagement with smaller companies, 9%
  • Longer-term strategic engagement priorities, 18%
  • Collaborative engagement, 51%
  • Pre- or post AGM engagement, 12%
  • Company due diligence & monitoring, 11%

 

In 2016 our collaborative engagements were increasingly focused on more in-depth, longer-term specific ESG issues at the company-level, together with Impax's partners and less broad, lighter-touch sector or thematic collaborative engagements.

 


LEA 12. Engagement methods

12.1. Indicate which of the following your engagement involved.

          Advice. Detailed advice for especially smaller companies regarding establishing material, cost-effective sustainability processes and reporting. Longer-term and in-depth engagements.
        

12.2. Additional information. [Optional]


LEA 13. Engagements on E, S and/or G issues

13.1. Indicate if your engagements in the reporting year covered E, S and/or G issues, providing an estimation of the breakdown.

Individual / Internal staff engagements

43 % Environmental only
9 % Social only
35 % Corporate Governance only
13 % Overlapping ESG issues
Total 100%

Collaborative engagements

52 % Environmental only
15 % Social only
0 % Corporate Governance only
33 % Overlapping ESG issues
Total 100%

13.2. Additional information. [optional]

In 2016 our collaborative engagements were increasingly focused on more in-depth, longer-term specific ESG issues at the company-level, together with Impax's partners and less broad, lighter-touch sector or thematic collaborative engagements.


LEA 14. Companies changing practices / behaviour following engagement

14.1. Indicate whether you track the number of cases during the reporting year where a company changed its practices, or made a formal commitment to do so, following your organisation’s and/or your service provider's engagement activities.

14.2. Indicate the number of companies that changed or committed to change in the reporting year following your organisation’s and/or your service provider's engagement activities.

Number of company changes or commitments to change

Individual / Internal staff engagements

11

Collaborative engagements

9

14.3. Additional information [Optional].

We focus our engagement on smaller companies and their governance and sustainability processes and structures. These companies are often positively disposed regarding ESG improvements, however often face limits to resources, both regarding staff and funds. The outcomes of these engagements often take time to crystallise, but we are encouraged by the continued and increased positive outcomes from our engagements, especially with US-based companies.


LEA 15. Examples of ESG engagements

15.1. Provide examples of the engagements that your organisation or your service provider carried out during the reporting year.

Topic or ESG issue
          Small company engagement. US materials recycling company, advice regarding establishing sustainability processes and reporting, following Impax's cost-effective, material framework.
        
Conducted by
Objectives

To give the company clarity on how cost-effective, material sustainability reporting can be established.

We suggested that strong initial sustainability reporting can be short, but very much to the point and would have the following elements (step-by-step):


1. Discussion around the most material non-financial (environmental, social) risks for company.
2. Establishing a small number of key metrics (KPIs) around these main or most material risks for company.
3. Reporting the annual statistics around these metrics (e.g. C02 emissions (direct/indirect), toxic emissions, staff accidents/incidents, food/product safety)
4. Setting targets around these metrics and establish regular reporting on how well they have been achieved.
5. Establishing management systems and processes  to enable achieving the targets (e.g. ISO 14001, OHSAS 18001, HACCP).


This can be 2-3 pages, no sizable, glossy CSR reports required.
 

Scope and Process

This has been an on-going dialogue with mainly company IR over a number of months and has involved several conference calls and email exchanges to develop the process to this point. 

Outcomes

On the back of this engagement, the company has committed to sustainability reporting and is in the process of implementing it.

Topic or ESG issue
          AGM-related governance engagement. Finnish water treatment company.
        
Conducted by
Objectives

Objective is to improve company remuneration-related practices, disclosures and transparency.

ISS QuickScore has a weak score for the company's remuneration practices and disclosures.

Scope and Process

Email exchanges, including detailed explanation of issues and one conference call with the company IR and head of sustainability and governance

Outcomes

Company’s ISS QuickScore already improved from 8/10 to 7/10 due to their clarifications regarding stock options, LTIP to ISS after our initial email exchange with company. Company will be introducing LT performance periods going from 1 to 3 years, Claw-back policy, in place, they will now be externally disclosing it (on the back of our engagement and recommendation), they will be publicly disclosing severance pay for NEOs (not just CEO). Questions around TSR – we view share ownership as better for alignment than using TSR as a performance parameter. In the future, when company announces a new Director, they will immediately state independence “status” to ISS/Glass Lewis (on the back of our feedback), we discussed the Finnish practice of bundling all directors together in the proxy votes. They will see if this could be changed going forward.

Topic or ESG issue
          Collaborative engagement with Impax's two investment partners, US testing company focus on establishing more robust sustainability processes and reporting.
        
Conducted by
Objectives

Objective is to understand the company's human rights and clinical trial policies and processes and to generally encourage improvement of company's ESG policies, practices and disclosures.

Scope and Process

Letter to company IR (written and signed by the three asset management firms) detailing who we are, why ESG policies, processes and disclosures are important to investors and why they are beneficial for companies to develop. The letter was followed by a conference call with the company IR.

Outcomes

Positive call, which was followed-up with an email detailing which peer companies have strong sustainability reporting and also detailing concrete next steps for company to develop KPIs and sustainability reporting. Follow-up call is scheduled.

Topic or ESG issue
          Collaborative investor engagement, driven and coordinated by an NGO. Letters followed by individual company meetings regarding the sustainability of global food companies' product portfolios.
        
Conducted by
Objectives

Research by Chatham House and others has indicated that it will not be possible to limit temperature rises to 2°C – the goal agreed at the UN Climate Change Conference, COP21, in 2015 – if livestock production and consumption are not addressed, posing regulatory risk to the industry. Further to this, the wider-ranging sustainability impacts of the increased demand for animal products seen over the last 50 years could prove costly, with a recent University of Oxford study suggesting that if unaddressed, public health and environmental costs could be up to $1.6 trillion globally by 2050. The collective impact and possible accumulation of these factors creates supply chains that are inherently more susceptible to disruption. FAIRR is coordinating a collaborative engagement opportunity to call on companies to think strategically about building sustainable protein supply chains, diversifying their protein ranges and mitigating the various risks associated with future supply chain disruption.

Objective is to initiate long-term company dialogues on this important topic.

Scope and Process

Letters outlining the sustainability challenges and possible opportunities and sent to 10 global food producers and retailers, by 40 investors, coordinated by FAIRR, followed by calls / meetings.

Outcomes

Impax participated in two company engagement meetings on this topic (two UK food retailers). Very positive and interesting dialogues, however these are long-term issues, which will require follow-on discussions over the next few years. But importantly the first discussions on this topic have been established and food companies have been made aware that investors are focusing on these issues.   

Topic or ESG issue
          Board diversity, governance, Japanese companies
        
Conducted by
Objectives

Since Japan established the Corporate Governance Code in July 2015, we have seen slow, but steady improvement of independence of Japanese boards. However, the majority of companies have no female representation either at boards or at the top management levels.

The objective of this engagement was to initiate discussions about this, find out about and suggest policies and processes that are supportive for establishing more diverse management teams and boards. 

Scope and Process

Letters to four Japanese companies, (written and signed by the three collaborating asset management firms) detailing who we are, why diversity is important to investors and why it is beneficial for companies. The letter proposed a conference call for an initial discussion.

Outcomes

It has been relatively difficult to reach and organise calls. We have had initial calls with two companies. While no concrete outcomes can be pointed to yet, the companies were quite interested in these issues and the first seeds have been sown in developing this. We will be following-up with the companies in the next 12 months on this topic.

Topic or ESG issue
          US buildings energy efficiency company. Engagement regarding entrenched board and under-developed sustainability processes and reporting.
        
Conducted by
Objectives

Objective is to discuss: 1. company plans to declassify board (only 17% of S&P 500 companies have classified boards today), 2. the board average tenure is >12 years (board entrenchment) and 3. company's lack of robust sustainability processes and disclosures.

Scope and Process

Email to company CFO to outline the objectives we would like to discuss. Email was followed by an initial conference call with the company CFO.

Outcomes

Company has currently no plans to declassify the board and long tenures of directors are managed through continuous training and education. However, the CFO said they are working on developing environmental and social policies, processes and disclosures. We discussed the importance of focusing on material issues and Impax will be sending our framework of "cost-effective and material" sustainability processes and reporting to assist company in this process. Impax is also to send names of peer companies that have good HSE processes and disclosures in place. Very encouraging call, with tangible next steps for improvements in the company HSE processes.

Topic or ESG issue
          Due diligence and monitoring engagement, update on ESG issues for US water infrastructure company.
        
Conducted by
Objectives

Objective is to discuss the upcoming AGM-agenda, governance and sustainability changes and issues at the company.

Scope and Process

Conference call with company General Counsel, Chair of Nominations Committee, Head of Sustainability and Head of External Engagements

Outcomes

Discussion about plans for management compensation in the 2017 AGM, no major changes. On the back of Impax' engagement in 2016, the company has established a double-trigger process for severance payments (from single-trigger). Company has established GHG reduction targets, Impax suggested for company to develop scientific GHG targets as well. We mentioned that it would be very useful to have impact data (water saved or GHG avoidance) through the company products and services. Company is trying to measure this, but difficult with many different end-markets and applications of their products. Company is declassifying its board from 2018 and are looking to improve gender diversity of the board. They also asked us to consider the following questions: 1. shareholder right to amend bylaws and 2. our view of level of over-boarding for directors, which we will follow-up on.

Topic or ESG issue
          Water risk engagement, water intense companies.
        
Conducted by
Objectives

We have established which companies are most exposed to water (water intensity, consumption or withdrawals) in our investable universe. We are conducting engagements to understand the localised or facility-based water stress risks for the companies and encouraging them improve disclosure around local water risks. We have also asked companies about the use of shadow water pricing to reflect local water scarcity and risk. Questions also about water management and reduction targets.

Scope and Process

Emails to water intense companies in our investable universe (food, water utility, industrial gases companies), followed by conference calls.

Outcomes

These engagements are still on-going, but the general observations are that water intense companies have quite rapidly improved their internal processes for measuring, quantifying and managing water risks, (and using tools such as Aquaduct for this) but reporting about this is lagging behind, we will be following-up on this. Companies are not using shadow pricing, but some were considering it.

15.2. Additional information. [Optional]

Impax's focus areas of Engagement for 2016/2017:

Entrenched Boards

  • Boards with average tenures of >10 years and no new directors in the last five years
  • Companies with entrenched boards often lack sustainability processes
  • Focus on US companies

Board diversity

  • Boards lacking diversity regarding gender and/or competencies
  • Focus on Japanese companies

Water risk management (most material sub-sectors)

  • Understanding water risk exposures at local or basin-level, water performance
  • Focus on companies in the water utilities and food sub-sectors
  • Sustainability processes, small companies
  • Providing companies with guidance to develop sustainability processes and reporting
  • Focus on smaller US companies

Sustainability processes, small companies

  • Providing companies with guidance to develop sustainability processes and reporting
  • Focus on smaller US companies

 


Communication

LEA 16. Disclosure of approach to ESG engagements

16.1. Indicate whether your organisation proactively discloses information on its engagements.

provide URL

16.2. Indicate if the information disclosed to the public is the same as that disclosed to clients/beneficiaries.

16.3. Indicate what engagement information your organisation proactively discloses to clients/beneficiaries and/or the public.

Engagement information disclosed

16.4. Indicate how frequently you report engagements information.

16.8. Additional information. [Optional]

We are developing more detailed engagement reporting, which will be disclosed publically later in 2016.


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