Ongoing interactions between the centralized ESG team and portfolio managers related to company engagement, proxy voting, and portfolio reviews are all opportunities to bring ESG issues and trends to the attention of investors and educate them about evolving best practices in each sector. Portfolio managers, industry analysts, and ESG analysts all take part in our ongoing dialogue with companies, and we share information from these engagements with one another using a central collaboration platform. Analysts regularly discuss issuers, write investment notes, and make comments in our morning investment meeting.  This collaboration is a form of ongoing “training” within our firm.

Throughout 2019, the Sustainable Investment team developed and delivered an ESG training module for all members of our Investment Products and Fund Strategies (IPFS) group. The IPS Group is responsible for investment integrity for Wellington’s platform of investment strategies. Given its deep understanding of each portfolio management team’s philosophy and process, we believe the IPS Group is well positioned to monitor that portfolio holdings are consistent with the stated investment and stewardship approaches and communicate evidence of ESG integration to clients.

Please refer to the additional comments on this indicator for a continuation of our response.

In 2019, we built further upon investor education by formalizing our ESG analysis of issues like employee engagement, turnover, and corporate culture, especially for companies that are highly acquisitive. The ESG Research team consulted with members of our own Human Resources department to develop a set of human capital-related questions we could ask during engagements with companies going through major M&A transactions. These questions are shared with all investors via email and Morning Meeting discussions.

As engagement and dialogue with boards have become a more significant input into our ESG analysis, the ESG Research team interviewed numerous public company board directors to gain perspective about how we can better assess corporate boards. We were able to solicit the views of former Wellington partners who now serve as directors. Investors were keen to learn about tips for engaging with boards, the best questions to ask, and potential red flags when evaluating boards.

ESG analysts attend conferences with governance professionals, board directors, and company representatives. We use the opportunity to share recommendations about how to engage with us and ask corporates how Wellington can improve our engagement practices. These best practices are shared with investors and are incorporated into meeting structure.

There is a dedicated ESG page on the central research collaboration platform, showing ratings, recent engagements, and voting history. ESG analysts began rolling out coverage of peer groups. A new ESG Rating Signal shows when our fundamental research led to a differentiated view from quantitatively derived ratings. ESG analysts provide feedback on the development of the next-generation collaboration platform to improve accessibility of ESG research.

A monthly Engagement Hub convenes to share case studies and promote best practices and collaboration across asset classes.

The ESG team manages an internal SharePoint site to store all of our materials and notable research so that colleagues from both investment and business functions can access our most recent research.

Sustainable Investment Director, Investment Stewardship Committee Chair, CEO Leadership, and investor line managers send emails detailing the evolution of our ESG research and integration.

We seek to “walk the walk” with our ESG views. We promote independent leadership by supporting the separation of board chair and CEO roles. Our private partnership structure is different from public companies, but the Executive Committee agreed that our CEO no longer uses the Chairman title and that committees are chaired by colleagues not involved in the function being overseen.

In 2019, we introduced an investor tool which will provide an interface to allow users to add topics, feedback, and outcomes of recently attended company meetings. This information will be used to source Shareholder Rights Directive II reporting. Company meeting and attendee information will be sourced from our existing Global Investment Calendar (GIC). Users will be presented with a list of meetings they attended and can enter engagement information associated with each meeting.

The proportion of ESG-focused engagements with investors present has increased meaningfully compared to prior years. We know that our message is stronger when equity and debt holders participate in these conversations. Similarly, our ESG sector analysts are participating in more investor-led engagements. As a result of continued collaboration between ESG and fundamental equity and credit analysts in engagement. Companies are more likely to discuss how management of material ESG factors fits into the strategy and vision.

Each of our portfolio managers develops their own investment approach whereby ESG considerations are integrated into their research and decision-making processes to the extent that they believe these issues may affect the long-term success of a company and investment returns. This can manifest itself within the investment thesis or portfolio weighting for a particular security, as well as within our proxy voting and company engagement efforts.

The increased involvement of the Investment Products & Fund Strategies group in the ESG integration dialogue continues to improve the systematic tracking of ESG issues to investment decisions.

Consistent with the objective of improved ESG incorporation into investment decision making processes, portfolio managers may express their views about the impact of ESG considerations relevant to their holdings in their investment decisions. Each of our portfolio managers develops their own investment approach whereby ESG considerations are integrated into their research and decision-making processes to the extent that they believe these issues may affect the long-term success of a company and investment returns. This can manifest itself within the investment thesis or portfolio weighting for a particular security, as well as within our proxy voting and company engagement efforts.

In the past year, our increased reporting transparency around ESG, which now includes our internal ESG ratings, has led to increased discussion between clients and portfolio managers regarding the companies identified as laggards in the context of the investment strategy. At the same time an additional emphasis on these factors throughout the research process, has led to greater emphasis within the investment decision making process. In some cases, this has resulted in portfolio managers taking steps to work with ESG and fundamental analysts to identify potential investments with similar exposures and more favourable ESG profiles for inclusion in the portfolio.

As required by specific client guidelines and objectives, we are able to manage portfolios in accordance to specific carbon reduction targets. Please refer to section LEI 07.2 for example, Low Carbon Platform.

In addition, our Quantitative Investment Group has developed a process for reducing the overall carbon footprint while minimizing tracking risk implications. While portfolio managers are not required to implement this approach, it is being piloted with numerous fundamental, active, diversified portfolios for consideration as an input into their investment process and portfolio construction.

Our Director of Sustainable Investment, Wendy Cromwell, was elected to the PRI Board of Directors in 2019 as an asset manager representative.

Two of our global industry analysts are members of the SASB Standards Advisory Groups for their respective industries (Renewable Resources & Alternative Energy and Technology & Communications).

Chris Goolgasian, Director of Climate Research, is a member of Climate-Related Market Risk Subcommittee of US Commodity Futures Trading Commission (CFTC), which identifies challenges to managing climate risks and ways to bolster scenario analysis, reporting and governance efforts, and explores potential policy initiatives and risk disclosure best practices. Marjorie Winfrey, Sustainable Investment Analyst, is a member of the PRI's EU Taxonomy Practitioners group, which shares tools and experiences to overcome implementation barriers.

In 2019, we joined the Ceres Investor Network on Climate Risk and Sustainability, and signed the Global Investor Statement to Governments on Climate Change in 2019, reiterating support for coordinated policy development to accelerate investment in the low-carbon transition and to enhance climate-related financial reporting.

We also joined the Investor Forum, a UK investor collaborative effort that escalates material issues with UK-listed companies. All holders are welcome to participate and share views.

In December 2017, we signed the Statement of Support for the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Since then, we have been using engagement to encourage uptake of the framework from companies across sectors and improvement of disclosure over time. We are encouraged by the progress of adoption; not surprisingly, we have seen the broadest uptake from European companies, but global awareness for the framework continues to grow. We believe that this is due in part to the non-prescriptive nature of the framework, as disclosure can be tailored to unique business models and material risks. While the quality of disclosure varies, we see three primary areas as opportunities for improvement: 1) attention to physical risks, 2) assessment of expected future financial costs/benefits, and 3) consideration of multiple climate scenarios.

In addition, we are often asked by asset owners and other asset managers about the value Wellington derives from membership and regarding the expectations of members/signatories of the various initiatives with which we are involved. In particular, we received multiple inquiries about PRI and Transition Pathway Initiative over the course of 2019. We are happy to share our perspectives and encourage new organizations to consider participating.

The ESG Research team maintains an ongoing library of the most effective company engagements as well as notable portfolio manager investment decisions to which ESG issues contributed.

In 2018, Wellington launched an Engagement Hub (alongside other thematic research Hubs) in order to identify opportunities for engagement, share case studies, promote best practices and collaboration across asset classes, and provide a space for discussion on the topic of engagement. One of the primary goals of this Hub is the documentation and socialization of best practices throughout the investment platform.

We include case studies to demonstrate engagement and ESG incorporation in our quarterly publication, the Global ESG Research update, which is available on our web site. Each quarter includes three summaries of representative engagements with companies across sectors and geographies.