Corporate engagement with companies is one of the most effective mechanisms of creating value along with voting our shareholding interests at annual general or extraordinary meetings.
As example, SSgA our global passive equities fund manager have been engaging on climate related issues since 2012. In 2019 SSgA engaged with 136 companies on climate related issues across 22 industries. They aim to leverage the four pillars of the Task Force on Climate-related Financial Disclosures (TCFD) framework – Governance, Strategy, Risk Management and Metrics - during engagement to understand the companies’ approaches and activities to mitigate and manage climate related issues.
For portfolios managed by Brandywine Global Investment Management that allow exposure to corporate debt, a company the manager held was facing pressure from investors to put into place a credible plan to refinance its upcoming 2020 bond maturity. The Investment team met with management on multiple occasions over a two-month period, including the CEO, CFO, head of IR, and equity holder, to assess whether the company represented significant default risk. The company showed little corporate governance and oversight, which increased their concern that the chairman was able to asset strip the company at low valuations, move assets into another entity, and default on the debt while maintaining control of good, cash-producing assets. Additionally, assessing the price and yield, risk was believed to be limited, but a stronger dollar and potential for additional pressure on emerging market credits outweighed the positives. An operational turnaround has also been slow to materialize. The company was not able to satisfy Brandywine's concerns over the engagement period, and the positions in the company were sold.
Furthermore, Brandywine's Global Fixed Income team also engages with government finance and central bank officials to gain information on an emerging country’s policies and plans when visiting a country and through participation in conferences such as those hosted by the IMF and IIF. They view these interactions as beneficial to our research process to gain direct insights into a country.
Engagement also provides fund managers with the opportunity to share their philosophy and corporate governance values and make a positive contribution to investee companies. Furthermore, it often provides us with a deeper and different perspective on how the company operates.
IFM Investors who manage a number of portfolios for Vision Super ranging from equities, debt, infrastructure and private equity believe active company engagement is critical to the advancement and promotion of responsible investment considerations across the broader corporate and financial sectors. This approach aligns with their Responsible Investment Charter and the values of their clients and their beneficiaries. IFM have an intimate knowledge of their investments and regularly engage with businesses either directly, or through the Australian Council of Superannuation Investors (ACSI). In their activity they seek to encourage positive change in corporate behaviour. Furthermore, IFM's activity is prioritised around pre-determined themes and objectives, which are reviewed on an annual basis. They also frequently engage with regulators, industry associations and the investment community to promote best practice responsible investment standards.