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Boston Common Asset Management

PRI reporting framework 2019

You are in Direct - Listed Equity Incorporation » Outputs and outcomes

Outputs and outcomes

LEI 12. How ESG incorporation has influenced portfolio composition (Private)


LEI 13. Examples of ESG issues that affected your investment view / performance

13.1. Provide examples of ESG issues that affected your investment view and/or performance during the reporting year.

ESG factor and explanation

Water Scarcity 

From mineral extraction to energy generation, or from apparel to agriculture, most industries require secure and steady access to significant amounts of water to produce their goods. However, water is becoming a scarce and precious resource with many countries including Brazil, China, Mexico, India and some parts of the U.S. already facing serious threats to water supply and prolonged droughts.

Water is an on-going engagement theme and one of our main efforts has been to encourage more companies to disclose their water use to CDP.

 

 

ESG incorporation strategy applied Integration

Impact on investment decision or performance

Currently, approximately 5% of Boston Common’s global strategy is invested in companies that are involved directly in water, waste water quality, or water management product offerings. We evaluate these revenue streams on a case-by-case basis. Some examples of past or current investments include companies that lead in home drinking water systems (3M), develop water purification and sewage treatment plants (Kubota), or develop non-potable water sources for their hydraulic fracturing operations (EOG Resources), amongst others. We also look for companies leading in their direct and indirect water use management, such as Unilever which has conducted a baseline assessment of supplier water use and is working with a subset of its contractors to reduce their water use.

ESG factor and explanation

Sustainable Finance/Good governance:

Banks and financial institutions are enormously important in creating economic value and helping to spred prosperity to all parts of the world.  Through short-term thinking, by not pricing negative exernalities such as carbon pollution, we have begun to threaten entire species and the future of our planet. Finance must play an integral role in sustainable growth. We seek to invest in firms that are incentivising a focus on the long-term among employees by aligning compensation with sustainable growth targets.  Through dialogue, we encourage financial institutions to be more accountable, and more transparent with all stakeholders.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

 Svenska Handelsbanken is one of the strongest and best managed full-service banks in Europe. Operating primarily within Scandinavia’s solid macro backdrop, Handelsbanken seeks superior profitability compared with peers by focusing on cost efficiencies, risk management, and customer satisfaction. Handelsbanken’s solid employment practices range from strict non-discrimination hiring and internal training to generous home and family services. Instead of bonuses based on short-term metrics, employees receive an equal share of profits through the bank’s unique profit-sharing model, Oktogonen. This compensation structure helps create a path to sustainable success by aligning employee and corporate interests with customer satisfaction, the long-term driver of profitability. 

Given the stability of its earnings, potential savings through digitalization, high dividend yield, and ESG leadership, we believe the stock presents a compelling investment profile. Risks include a downturn in the Swedish housing market and asset quality issues in newer growth markets

ESG factor and explanation

Eco-Efficiency as a theme.  For the past three years Boston Common has been leading a portfolio-wide engagement on the issue of eco-efficiency - encouraging our portfolio companies to reduce their energy and water use and eliminate wastes.  Unless there is a shift in world energy policies, global energy demand is set to accelerate, putting increasing strain on the world economy and the environment. Yet additional annual investments in energy productivity of $170 billion through 2020 could cut global energy demand growth by at least half—the equivalent of 64 million barrels of oil a day or almost one and a half times today’s entire US energy consumption. (Source: International Energy Agency)  Nearly 20% of the global emissions and energy consumption originate from material extraction. In the last decade recycling has emerged as an ecologically sound solution in the face of material scarcity and to lower the environmental impact caused by material extraction and refining. 

 

 

ESG incorporation strategy applied Integration

Impact on investment decision or performance

 Taiwan Semiconductor is the leading provider of outsourced semiconductor manufacturing "foundry" services. TSM provides process design services and manufacturers thousands of different semiconductor products in small and large batches across several manufacturing process technologies. The semiconductor manufacturing production process generates large amounts of gaseous and chemical wastes, wastewater and other industrial wastes, and as such TSM has an opportunity to derive savings from the effective management of water, energy and waste.

 

Taiwan Semiconductor has implemented leading environmental practices throughout its manufacturing operations, supply chains and product lines. Even with increasingly complex production processes, TSM has decreased its water use intensity and increased its water recycling rate. The company also commits to maintaining a green supply chain by requiring and assisting suppliers to adhere to the same level of chemical safety and environmental standards. TSM has developed clean tech products including lower power consumption chips for mobile devices, high efficiency LED driver chips for flat panel displays and LED lighting, and Energy Star certified low-standby AC-DC adaptor chips.

ESG factor and explanation

Growth in demand for 'Natural,' 'Green' and Organic products.  Due to a widespread lifestyle shift, caused by rising environmental awareness, and increasing concerns for health and wellness, many of today’s consumers are demanding greater transparency in their purchases. They seek to know where their products come from and what exactly they are made of. While this lifestyle shift is clear regarding its impact on the food industry, as market leaders scramble to offer GMO- and additive-free offerings, other high-growth natural consumer product categories such as baby, personal care, household and cosmetics may be overlooked.

 

ESG incorporation strategy applied Integration

Impact on investment decision or performance

Based in the UK, Croda is a specialty chemical company that uses renewable, natural sources for 65% of its raw materials. It remains a key holding across our international portfolios. Its Consumer Care business develops ingredients for personal care, agricultural, and health care products. The Performance Technologies division supplies polymers, lubricants, and coatings to mostly industrial customers.

Croda delivers highly customized chemical products by leveraging its direct sales force, technical expertise, and worldwide production. The company’s ingredients are critical components but account for a fraction of the cost of its customers’ final products. Management’s focus on small volume, high value products, especially for the personal care industry, should help expand profit margins over time. Croda's natural ingredient sourcing specialization should foster growth due to increased attention to health and sustainability.

Croda incorporates product stewardship principles, including green chemistry, into the design and development of all new products. In our view, Croda's strong competitive position, targeted strategy, and attractive market niche make its valuation look compelling.

ESG factor and explanation

Supporting the transition to a low-carbon economy

An important theme that runs through all of Boston Common's investment analysis is how to position the portfolio for the on-going shift to a lower carbon economy. In line with our investment beliefs Boston Common avoids investments in coal, which we believe should be scaled down immediately. Instead, we favor the use of natural gas, which we view as a necessary transitional fuel over the next 10 to 20 years. We invest selectively in oil, avoiding the most resource-intensive means of extraction. We favor renewables, to the extent they are financially sound and fall within our opportunity set. And, most importantly, we look for providers of and leaders in energy efficiency and technological solutions throughout the economy’s value chain, which will benefit from the transition to a low-carbon economy. 

 

ESG incorporation strategy applied Integration

Impact on investment decision or performance

Though Avangrid's market cap makes it smaller than the typical company that we invest in, we were attracted to invest as it is a leading sustainable energy company, facilitating the transition to a lower carbon economy. As the third largest operator of wind farms in the US, Avangrid is well positioned to meet the increased demand for renewable energy, as the cost of wind energy becomes increasingly cost competitive with other energy sources. Operating in 27 states, Avangrid has a growing presence in wind power generation  with utility companies and large corporations sourcing renewable power through long-term power purchase contracts.

13.2. Additional information.[Optional]


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