We cultivate relationships with other asset management firms and broader industry organizations to share insights on corporate governance trends and local market considerations. Due to our firm’s significant presence and long-term track record in nearly all sectors of the global securities markets, we often have direct access to company management teams. We believe this access is highly valuable, given the number of meetings we conduct, the breadth of our contacts, and the quality of the dialogue. We often prefer to engage privately with our portfolio companies as we have found this encourages openness and a productive engagement dialogue. When private engagement proves ineffective, however, we are willing to collaborate with other investors when such action would be in our clients’ best interests and is permissible under applicable laws and regulations.

In 2019, Wellington became a member of the Investor Forum, a collective engagement body representing investors in UK listed companies.

The prioritization of our engagement activity can come from any part of the ESG Research team’s process – ratings and research, portfolio reviews with portfolio managers, or proxy voting.

As one component of the firm’s research process, companies are assigned an ESG rating using a proprietary, systematic process that uses third-party inputs and considers industry, home market, and company size in defining the peer universe. Each rating reflects a peer-relative assessment, thus comparison versus peers is most meaningful. Importantly, the rating is not a buy or sell signal but rather helps to flag companies and provides a starting point for deeper analysis. Because ESG ratings for a given peer group are assigned based on a normal distribution, the ratings naturally identify positive and negative outliers which may warrant further research and engagement. We may choose to engage with a negative outlier company to ensure that the rating is capturing the company’s full scope of procedures and disclosures, to provide direct feedback to the company on a particular issue, or to check in on the company’s progress since we last spoke. We may choose to engage with a positive outlier to hear about emerging best practices in a particular industry, which helps us provide better feedback to other companies in the sector when we engage on the same topic.

Another source of prioritization comes from the portfolio review process. An ESG analyst performs portfolio reviews with portfolio managers to identify holdings with the greatest ESG risks and opportunities. This conversation often leads the portfolio manager to provide feedback about the companies which s/he would like the ESG Research team to discuss with to potentially influence behavior.

In certain instances, the ESG Research team will engage with companies prior to an annual general meeting in the event that the company did not receive strong support from shareholders in the prior year. In particular, the team seeks to understand whether the board has been receptive to shareholder feedback and made substantial changes to improve the proposal.

In our view, a successful engagement is one in which the issues discussed are material to the business, company management provides thoughtful responses and is receptive to our feedback on those material issues, and the insight gained during the engagement informs or leads to an investment decision. We also view recurring engagements with the same company that demonstrate growing understanding and more proactive mitigation strategies as successful given that we have been part of influencing the company’s behavior and moving toward best practices. We track engagement topics in an ESG tool, with analysts assigning quantitative values to each issue. As we repeatedly engage, we can monitor how these assessments improve or worsen. We do not share this data externally.

In 2017, the ESG Research team built out a tool that allows the team to better track and communicate engagement activity. This involves tagging the relevant ESG indicators discussed and assessing the company's progress on each indicator. The tool then emails an engagement note directly to portfolio managers and analysts who own or follow the company.

Each company within the ESG Research team’s coverage has a dedicated ESG page on the central investment collaboration platform which shows an explanation of what is driving the company’s ratings, recent company engagements, and proxy voting activity and history. This page also provides a historical view of the company’s rating over time and identifies leaders and laggards based on its relevant peer set.

The ESG Research team's engagement tracking tool allows for the tracking of all engagements led by the team. ESG analysts join meetings with companies hosted by equity and credit analysts and portfolio managers, and vice versa. Wellington uses a global investor calendar to log meetings with companies across all investment teams and facilitate collaboration across teams in these meetings. This number may exclude investor-hosted meetings where ESG topics are discussed without an ESG analyst present. This is a frequent occurrence given the global presence of our investors and the volume of company meetings hosted – over 10,000 per year.