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Boston Common Asset Management

PRI reporting framework 2019

You are in Strategy and Governance » Governance and human resources

Governance and human resources

SG 07. RI roles and responsibilities

07.1. Indicate the internal and/or external roles used by your organisation, and indicate for each whether they have oversight and/or implementation responsibilities for responsible investment.

Roles

Select from the below internal roles

07.2. For the roles for which you have RI oversight/accountability or implementation responsibilities, indicate how you execute these responsibilities.

Boston Common has a team of 17 professionals in the integrated ESG/investment team, including 4 dedicated responsible investment staff.  
We consider this the full investment team;  this team provides research, portfolio construction and engagement support to all of Boston Common's internally managed strategies.
 

We integrate ESG factors at every stage of our research and investment process: in the definition of the investable universe, through ruling out companies with the worst records; in the stock selection phase through detailed company research identifying leaders and laggards; and in the portfolio construction stage where our goal is to raise the portfolios' ESG profiles. Our dedicated responsible team, financial research team and portfolio managers are involved in these steps.  Our President, CIO  and other members of our integrated ESG/investment team are closely involved in the planning and execution of our responsible investment strategies

  1.  Quantitative Screening + Initial ESG review

We begin the equity selection process by creating a diversified monitor list of what we believe are high-quality stocks. For our international and global strategies, we construct monitor lists of securities drawn from the appropriate benchmarks - MSCI EAFE, MSCI ACWI, MSCI ACWI exUS or MSCI Emerging Markets indices. We screen these lists using statistical metrics such as capitalization, liquidity, profitability, and leverage as well as environmental, social, and governance criteria. These screens exclude companies that have consistently lost money, taken on unsustainable levels of debt, or experienced such volatile operating performance that we would not be confident in projections about their future profitability. Typically we exclude the bottom quintile from each sector on financial and ESG quality.
 

2. Fundamental Research

Using an ESG lens we examine the material risks and opportunities that impact companies in the same sector. Similarly, our financial analysts cover the global sectors in which they have developed specific expertise, generating stock ideas in those sectors, monitoring our holdings, and tracking market dynamics. Beyond the initial quantitative universe screening and careful consideration of top-down forces, the focus of our research process is bottom-up, fundamental research on specific companies. The ESG team produces a detailed research report on each company under consideration for inclusion in the portfolio. Once the stock has been vetted from an ESG perspective, our global sector analysts all contribute to the creation of a focus list which identifies companies which are high quality and trade below their intrinsic value.
 
3.  Sector Level Understanding of Risks and Opportunities
The ESG team presents their analysis of the material issues in each sector, highlighting emerging issues, best in class practices, risks, and opportunities. They also highlight leading companies in each sector. If the fundamentals and valuation analysis corroborates and supports the idea, such ESG leaders may be bought into the portfolio. A complete sector level ESG analysis is done about once in 18 months. A more frequent financial analysis at the sector level is also undertaken, twice a year, by the sector analysts, with the goal of analyzing sub-sectors and creating an update on changes arising from macro-economic trends, policy changes, fundamentals, and valuation changes.
 
4.  Portfolio Construction
Using the stocks which have been vetted and approved by both teams we construct a portfolio of 60-80 names, in which each security usually has a weight ranging from one to three percent of the total at purchase. We prefer to buy the strongest companies from an ESG perspective. We will not, however, invest in a company which, in our opinion, has a weak investment outlook even though it may have a strong ESG profile. In some industries we are currently unable to find enough companies with both strong investment and ESG profiles; we also buy companies that are better than average from an ESG perspective if we believe they are financially attractive. In these instances, we seek to raise the social profile of our holdings by urging the management of portfolio companies to improve their policies and operations through active shareholder engagement, proxy voting, or other engagement strategies such as public benchmarking or improving industry standards.
 
5.  Ongoing Portfolio Maintenance
In addition to monitoring traditional financial metrics relative to the benchmark on an ongoing basis, Boston Common tracks ESG profiles and shareowner engagement accomplishments over time. In some instances, we have discovered that a holding's ESG profile has changed so that it would no longer pass our initial screening criteria; in this case, we have sold our holding down to zero. The opposite has occurred as well - a company has improved their profile so that they are eligible for purchasing.
 
6.  Long-term Shareowner Engagement
Our engagement is intended to support long-term thinking by corporate managements. We believe that long-term oriented decision making will improve the fundamentals of the company, eventually becoming reflected in the value of its shares. These improvements may take the form of lower risk premium, higher earnings, cost savings, product and process innovation, policy changes, etc. As shareowners we seek transparency and accountability from companies, but also empower steps towards better environmental, social, and governance frameworks.

07.3. Indicate the number of dedicated responsible investment staff your organisation has.

15 Number

07.4. Additional information. [Optional]

I confirm I have read and understood the Accountability tab for SG 07 I confirm I have read and understood the Accountability tab for SG 07

SG 07 CC. Climate-issues roles and responsibilities

07.5 CC. Indicate the roles in the organisation that have oversight, accountability and/or management responsibilities for climate-related issues.

Board members or trustees

Chief Executive Officer (CEO), Chief Investment Officer (CIO), Chief Risk Officer (CRO), Investment Committee

Dedicated responsible investment staff

External managers or service providers

07.6 CC. For board level roles for which have climate-related issues oversight/accountability or implementation responsibilities, indicate how these responsibilities are executed.

The board reviews and endorses our commitment as a signatory to the Montreal Carbon pledge which we have adopted as a formal commitment to measure, disclose and reduce our carbon footprint.  Our chief investment strategist, responsible for co-designing our ESG approach chairs our board of directors.

 Our approach to measuring carbon risk goes beyond the energy and utilities sectors; we consider risk in transport, shipping, and agriculture, and in those industries that have ignored financial risks associated with lending to carbon intensive industries, such as banks and insurance companies. Assessing our portfolios’ carbon footprints informs our investment decision-making process, as we seek companies that are not only making efforts to reduce their GHG emissions, but also those that already have demonstrated low carbon footprints. We complement this assessment by avoiding risky companies whose GHG emissions have grown unabatedly and are more susceptible to financially related climate risks. We actively use the data to challenge companies on climate-strategic questions in our shareowner engagement initiatives. Our major strategies produce fewer emissions and are less carbon-intensive than their respective benchmarks, primarily due to stock selection. 

Every quarter, the Board receives a complete review of our strategies, covering financial and ESG aspects, carbon footprint, Engagement outcomes.
In addition, the budget for our own firm level initiatives undertaken to offset our carbon footprint, select and support offsets are included in firm-level budgets approved by the Board.  We also have firm-level contingency plans for operating in extreme weather events. 

07.7 CC. For the management-level roles that assess and manage climate-related issues, provide further information on the structure and process involved.

Our firm-wide commitment to addressing climate change is managed collaboratively by the integrated ESG Investment team. 

The Director of Shareowner Engagement has been primarily responsible for the management and implementation of our commitment to the Montreal Carbon Pledge. We have conducted carbon audits of our key model portfolios (U.S. Core, International EAFE, ACWI ex U.S. and Sustainable Climate) and  use the results to inform our investment decision-making and engagement. We also communicate those results publicly on an annual basis.

Our Director of ESG Research and our Chief Investment Strategist have been primarily responsible for the implementation of climate considerations in our portfolios. However, our entire 15 person strong investment team is responsible for identifying companies that are developing innovative tools,,  Our integration of ESG considerations has lead energy efficiency and renewable energy to become long running investment themes. We have sought companies that develop energy efficiency or renewable energy products or support them in their operations.  We have also reported out to clients for more than a decade on the percentage of their assets which were invested in companies providing environmental or social 'solutions.'  (based on our own definitions and revenues derived from these products or services).  Around ten percent of the companies in our portfolio are 'solutions' firms with the largest group those companies falling into the recycling/energy efficiency or the renewable energy categories.

Given our preference for ESG leaders,  our investment team is oriented towards building portfolios which avoid investing in companies and industries contributing the most to global climate change.  We seek  subsitutes to the most energy intensive companies where they exist  and avoid investing in companies whose primary revenues come from coal or nuclear power, tar sands and corn based ethanol. 


SG 08. RI in performance management, reward and/or personal development

08.1. Indicate if your organisation’s performance management, reward and/or personal development processes have a responsible investment element.

Board members/Board of trustees

08.1b. RI in personal development and/or training plan

08.2. Describe any activities undertaken during the reporting year to develop and maintain Board members’ skills and knowledge in relation to responsible investment.

As a sustainability-focused investment boutique, our staff who serve on the board bring a unique combination of skills and experience to oversight of our integrated ESG investment approach. We  run a series of internal workshops at least quarterly where we bring together our ESG analysts, our financial analysts and other members of the firm to learn about ESG issues and share their expertise.

Chief Executive Officer (CEO), Chief Investment Officer (CIO), Chief Operating Officer (COO), Investment Committee

08.1a. RI in objectives, appraisal and/or reward

08.1b. RI in personal development and/or training plan

Dedicated responsible investment staff

08.1a. RI in objectives, appraisal and/or reward

08.1b. RI in personal development and/or training plan

08.3. Provide any additional information on your organisation’s performance management, reward and/or personal development processes in relation to responsible investment.

As previously stated we run a series of internal workshops  - the Education Series where we bring together our investment team, other outside experts and other members of the firm to learn about particular social and environmental issues and share expertise.  Workshop topics in 2018 included research on company performance on indicators to measure gender equality, a film tracking the 'bleaching' of ocean coral as a result of climate change (Documentary: Chasing Coral) and the impact of the 13th amendment in the United States on mass incarceration and racial injustice (Documentary: 13th).

We host lunch and learn events (sometimes in collaboration with the Boston Area Sustainable investors BASIC), and these are open to all our staff, and address topics of concern to all responsible investors.  All members of our ESG/integrated investment team, and especially our dedicated responsible investment, have performance measurement and annual bonus payments linked to an appraisal of their skills, and contributions to our responsible investment and engagement efforts during the year. 
 


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