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Boston Common Asset Management

PRI reporting framework 2019

You are in Strategy and Governance » Investment policy

Investment policy

SG 01. RI policy and coverage

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01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

          ICGN Global Stewardship Principles
        

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

Boston Common believes markets typically mis-value the risks and opportunities presented by environmental, social, and governance factors, both in terms of the timing and the magnitude of outcomes. We seek to preserve and build capital through diversified portfolios of high-quality, sustainable, undervalued stocks.  We identify companies with sound governance and a history of responsible financial management that we believe are capable of consistent, visible profitability over a long time horizon.  We look for indicators of quality in firms operating successfully in economic sectors with superior end-market growth or improving industry competitive dynamics, but that appear to be trading at discounts to their intrinsic value.   Our research-driven conviction is enhanced by our 360 degree perspective where we integrate financial and environmental social and governance (ESG) criteria into our stock selection process.

We are constantly working to adapt the implementation of this philosophy to a changing market environment.  However, the general principles have remained consistent over time and across the strategies we manage.  In volatile market conditions, we have come to appreciate how our integrated ESG and careful valuation approach helps us to provide long-term upside and manage “tail risks” (low probability-high impact events). 

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]


Our firm is a responsible investment boutique.  As such, our firm-wide investment policy is governed by a responsible investment approach with ESG integration and active stewardship/shareholder engagement, and this investment policy applies to all accounts.  Some clients may request additional customized considerations such as animal rights, peace, or fossil-fuel free investing, and we reflect those considerations in their bespoke investment policy statements. Our ESG Research team has over 20 years of collective experience in helping to define the metrics that are now commonly used in ESG data gathering, disclosure, and engagement. As pioneers in this field, we are often asked to be leaders and contributors to educational seminars through NGOs, activist networks and more recently through financial advisory and intermediary events. In addition to being internal mentors, we encourage our team members to go to industry conferences and seminars on specific Environmental, Social, or Governance issues.
 

01.6. Additional information [Optional].

          
        
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SG 01 CC. Climate risk

01.6 CC. Indicate the climate-related risks and opportunities that have been identified and factored into the investment strategies and products, within the organisation's investment time horizon.

Within our investment time horizon, climate risks affect all sectors and subsectors, some more directly than others. As an asset manager investing in global equities, we use a combination of ESG integration and proactive engagement to address this challenge.  We incorporate climate risks and opportunities into our stock selection, portfolio construction and shareholder engagements.   There are also emerging risk and opportunity dimensions, as people and planet cope with the changes.  We pursue active engagement across all sectors to encourage the transition to a low(er) carbon economy.

 (1) Concerns regarding stranded assets have much broader implications than the list of 200 hydrocarbon producers targeted by activists.   Segments seeing direct impact include Energy services companies and electric utilities  whose businesses could quickly become obsolete. We extrapolate further to industries that will be deeply affected  by climate change but perhaps not cut to the core, for example: the transport and shipping sectors, energy-intensive chemicals and fertilizers, livestock agriculture,  etc. If carbon were priced to reflect its true cost, we would expect to see follow-on effects throughout the economy, with the most hydrocarbon-intensive products and firms losing to more efficient alternatives.

(2) Changed economics of the business due to changes in costs, market demand, pricing power:  These changes could come from regulatory changes, weather related disruptions, changes in consumer preference, social license to operate, etc.  We assess the probability of these changes and their impact on the company's operations, fundamentals and valuation.  On the revenue side, total demand as well as pricing power could be different as consumer preference shifts and disruptive new technologies emerge.

(3) Carbon risk and opportunity in sectors that are not traditionally carbon intensive:  Examples of this are sectors like Financials and Healthcare that could face risks from their current operations if they continue with business as usual.  Increasing lending to carbon intensive segments or businesses create the potential for non-performing assets,  mispriced loans and less diversified portfolios  as climate risks affect many different types of businesses.  Healthcare challenges of air quality and natural disasters may not be fully anticipated.  

(4) Sector level assessment:  At the sector level, we identify risk and opportunity, and select the appropriate approach: 

Risks we want to avoid (where the risks are core to the business model of the company), e.g. coal or tar sands producing companies.  Companies with climate risk exposure, but where products or practices can be improved through engagement, e.g.  best in class companies with modest climate-risk exposure.   
Companies with contingent risks, that are traditionally not viewed as high risk, e.g. the financial sector which can also create major systemic risk for investors through their activities  We seek investments in companies whose products and services are part of the solution to climate risks, provided they meet our financial quality, valuation and portfolio requirements.

(5) Seeking Opportunity everywhere:  We look for providers of and leaders in energy efficiency and technological solutions throughout the economy's value chain, which will benefit competitively from the transition to a low-carbon economy. 

 

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

01.8 CC. Indicate the associated timescales linked to these risks and opportunities.

Boston Common aims to provide for society’s transition to a low carbon economy over a manageable time horizon (over the next 10-20 years)  by investing selectively in more carbon-efficient fossil fuels, by preferring firms with energy efficient products and processes over those with more resource-intensive alternatives, and by engaging the companies we own to improve their energy use.

We do both top down and bottom up assessments of companies regarding key environment and climate change risks and/or opportunities for each sector. Preparedness and ability to address climate change and other environmental risks are embedded within this analysis and lead us to identify leaders and laggards within sector, industry and sub-industry. We use this research to drive critical assessment of Management Quality in all sectors.

Through engagement, we seek to create some “momentum” on the ESG side, and improve fundamentals of portfolio companies. Insights into possible engagement initiatives arise out of our Research into material risks, and opportunities available to an industry, and to companies in our portfolios.

In some of our more recent climate-themed engagements, we prioritized those banks that are the largest financiers of carbon intensive industries to leverage their role in financing energy efficiency and renewable energy innovation, and portfolio companies with the highest GHG emissions on eco-resource efficiency investments at the operational level.

 

01.9 CC. Indicate whether the organisation publicly supports the TCFD?

01.10 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

Boston Common aims to provide for society's transition to a low carbon economy over a manageable time horizon (over the next 10-20 years) through integrated investment and proactive shareholder engagement/active stewardship.  

For the long term, we consider systemic changes:  severe weather events with changed frequency, changes in the expected distribution of outcomes, posing severe challenges for investment assets, beneficiaries of investment assets, financial companies, lenders, insurance companies, and indeed every sector of the economy.  Given the cumulative nature of Climate Change, we anticipate risks that cannot be diversified away.  We have created active engagement across all industries and sectors for low-carbon transition preparedness, solutions opportunity, and prompting and curating discussions regarding Board-level oversight  of ESG issues -- "the governance of sustainability".  In our climate-themed engagements, we have prioritized those banks that are the largest  financiers of carbon intensive industries to leverage their role in financing energy efficiency and renewable energy innovation, and portfolio companies with the highest GHG emissions on eco-resource efficiency investments at the operational level.

For the medium term, our ESG and financial analyst teams create sector maps of risks and opportunities.  We assess new technologies, thematic opportunities, declining sectors, changing  the risk-reward opportunity from some carbon-efficient products, services, materials, industrial processes, water stewardship, etc.  Our effort is to identify products, processes and policies that will be more resilient, and contribute to a low-carbon future and climate resiliency.  We also look at regulatory change and consumer preference, to identify evolving, growing end-markets, pockets of risk and opportunity at the industry or sub-sector and geographical level.  We are looking for sustainable, profitable growth, the pricing of hitherto unpriced risks, and potential re-rating in valuation terms as our returns could come from all sources.

For the short term, our portfolio decisions are sensitive and responsive to valuation, shifting comparative advantage, the competitive dynamic, and macroeconomic considerations.  On a day-to day-basis, we are particularly mindful of disruptive new ways of doing things:  which brings competition from different sectors, to traditional dominant players.  In the renewable energy space for example, market leadership and pricing power has shifted a lot over the last two decades and winners and losers change with technological advantage, regulation, market share, and good execution of product-market strategy.   

1.12 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.


SG 02. Publicly available RI policy or guidance documents

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

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

URL/Attachment

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

URL/Attachment

02.3. Additional information [Optional].

As an asset manager focused solely on responsible and sustainable investing, all of our reporting is about our integrated approach from our Responsible Investment philosophy, ESG Integration, Active Ownership activities, Proxy Voting and Shareholder Resolutions, and Engagement Impact.  

It is therefore difficult to direct you to one document or place our own website and in some cases multiple places or documents cover these topics.


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

Our organization's Conflict of Interest Policy requires each employee, on both their employment start date and on an annual basis, to disclose all potential conflicts of interest to the Compliance Department - Compliance then monitors all trading against this list of conflicts on a quarterly basis.

As a fiduciary, Boston Common Asset Management must act in the best interest of its clients. The firm strives to identify, mitigate and avoid conflicts of interest with clients and disclose all material facts concerning any conflicts that do arise.  Our conflict of interest policy covers:

All aspects of the client relationship; political and charitable contributions; gifts and entertainment; vendors and suppliers; outside business activities and service as a director among other issues.

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within portfolio companies.

04.2. Describe your process on managing incidents

As part of our ongoing monitoring for ensuring companies meet our ESG guidelines, we subscribe to outside vendors such as RepRisk.  If a significant incident or controversy is flagged that will warrant additional action including seeking further information from media and other sources in order to understand the nature and extent of the problem. We will also contact the company directly, in order to gauge their response to the issue and their level of openness in responding to investors seeking insight into the severity of a particular incident. We are particularly interested in understanding whether the incident is a 'one-off' or is part of a wider pattern of behavior that would indicate a problem with internal controls, oversight or some other aspect of governance. If we have not received a response which we feel is adequate from the company in terms of how they might address and mitigate the impact(s) of the incident we may recommend selling out of the holding.

 


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