We believe monitoring and engagement are an essential part of being a shareholder in a company. It allows us to improve our understanding of investee companies and their governance structures so that our voting decisions may be better informed. The materiality and immediacy of a given issue will generally determine the level of our engagement.
To identify areas in which there are governance concerns, we use a range of resources including our own fundamental research. We hold regular meetings with the management of the companies in which we invest to discuss strategy, sustainability and performance, and to review management processes against the principles and best practice outlined above.
At a minimum, we would expect companies to comply with the accepted corporate governance standards in their domestic market or to explain why not doing so is in the interest of shareholders. We believe that well-managed companies will report on material social and environmental risks and opportunities and explain how these are managed. As these are not always voting issues, we may engage directly with company management or the board where we believe there is the potential for a material impact on shareholder returns.
We adopt a case-by-case approach to engaging on material governance, environmental or social issues. We will engage with management in an appropriate manner and make a record of this engagement – this may be by conference call, letter or by seeking access to the board chair person or directors.
Where we believe shareholder value is threatened or is not being realised, we may request that the board takes appropriate action. In most cases, a robust private dialogue with executive management, non-executive directors and company advisors is our preferred way to protect our clients’ interests. We will also engage with the chairperson of the board or the senior independent director where appropriate. If we receive an unsatisfactory response, we may liaise with other shareholders to discuss joint intervention or publicly oppose management who refuse to act on our concerns or where appropriate we may sell the shares to protect our clients’ assets.
We also aim to participate in collaborative engagement where appropriate.
As part of remuneration, each analyst on the Sustainable Investment team have pre-agreed engagement objectives every year. Eg. One analyst would be involved with the PRI Engagement on Cyber Security, another analyst would be involved with the PRI Sustainable Palm Oil Investor working Group. Their performance is assessed against these objectives.
The Sustainable Investment approach is one of full integration of ESG issues into investment decisions. They do not have separate fund management and ESG teams; instead every investment team member is responsible for all aspects of financial and ESG factors relating to the investment decision. Team members are responsible for clearly defined sectors and cover stocks within their respective sector. Each team member has responsibility for monitoring the major trends and themes in their sector, identifying investment opportunities, assessing the ESG performance of those opportunities, integrating that information into forecast earnings and valuation, submitting investment recommendations for their funds, engaging with companies and subsequently conducting all proxy voting for investee companies. Because of this integrated approach, investment team members engage with companies across a broad range of issues relating to steps in our investment process e.g. screening criteria, sustainable investment themes and company-specific environmental, social and governance issues.
The team have developed this approach for more than 18 years that they have been investing responsibly as they believe it is the best way to deliver investment performance. The team's track record strongly supports this view.