The Ellerston Responsible Investment (RI) Policy covers our active ownership policy under section 6. Stewardship. This refers to our engagement and voting policies, the latter which references a separate and detailed Proxy Voting Policy. Extracts from our RI policy follow below:
Ellerston recognises its fiduciary obligation to act in the best interests of all clients, and good and effective stewardship of our client’s investments is an important aspect of achieving this obligation.
Our approach to stewardship is two-fold:
Firstly, regular engagement with the senior management of existing and prospective investments enables discussion of relevant matters, ensures good corporate governance practices, and may also seek to influence corporate decision making at a strategic level, where this is considered to be beneficial to clients;
Secondly, it is our duty on behalf of our clients to vote their proxy, or advise on the exercising of proxy votes, when the investments in their portfolios are entitled to do so. Ellerston’s policy is to always vote in the best interests of the client’s investments in the portfolios that we manage on their behalf.
This Policy sets out our approach to engagement and proxy voting in the context of corporate governance principles, the investment management process and client service responsibilities.
Ellerston seeks to actively engage with our investee companies to deepen our understanding of management views and strategies with regards to both business and ESG-related issues. Importantly, this engagement gives us the opportunity to voice any concerns we may have about any material ESG risks that we observe.
When possible, our analysts typically speak with representatives of the companies we are considering for investment to ask a range of questions about their operations, the challenges they may face, and the key conditions required for their success. These do encompass targeted questions relating to specific ESG factors, such as supply chain management, employee relations, environmental risks and mitigation, as well as corporate governance. Dialogue with management continues in regular follow-up meetings and communications after we invest in the company.
We will raise our concerns with management if we believe that the company is pursuing a course of action that risks jeopardising the sustainability of the business and is thus detrimental to medium to long-term shareholder value. In these instances, we will propose other potential courses of action, or solutions to any material ESG risks we observe.
Engagement is also an opportunity to bring an informed shareholders perspective to management. It enables us to contribute our in-depth understanding of the company and its industry, and to provide support and constructive ideas to the current strategy.
We are realistic about the extent to which we can effect change through active ownership, and we may choose to exit a position in cases of material ESG risks, rather than persisting with attempts to engage with an unreceptive management team. Once again, our guiding principle is to act in the best interest of the investors whose money we manage.
Investment Holding Periods
Whilst our investment time horizon is long term, it is sometimes the case that the actual holding period is shorter than envisaged (if our expected valuation is reached quickly or our disciplined risk management dictates the sale of an investment). In these instances, it may not be possible to effectively engage with companies where material ESG risks have been identified.
Limitations of Direct Engagement & Membership of Shareholder Action Groups
Another way our “voice” can be heard is through membership of groups which bring together shareholders and organise effective collective engagement on particular issues. Ellerston is a signatory of Climate Action 100+, an organisation which coordinates engagement with the world’s largest corporate CO2 emitters. The purpose of this collective engagement is to improve governance on climate change, curb emissions and strengthen climate-related financial disclosures.
As a signatory we are specifically contributing to the engagement with companies listed in Australia.
We may join other similar collective groups.
Annual General Meetings (AGM’s) are the formal corporate governance mechanism through which shareholders are asked to express their opinion on various important matters such as the composition of the Board of Directors, remuneration policies for senior management, changes to shareholder capital, and appointment of auditors. Extraordinary General Meetings (EGM’s) are used, or can be called to address matters such as large corporate transactions which may or may not be in shareholders’ best interests, on an ad-hoc basis.
For the companies that we invest in, the right to vote at AGM’s and EGM’s is ultimately owned by our clients. We consider it part of our fiduciary duty to exercise these votes in the appropriate manner on their behalf. Our separate Proxy Voting Policy details the voting process accordingly [link].
We will regularly engage with other investors and relevant industry organisations (such as PRI, RIAA, ASA) to promote the industry wide integration of ESG issues and to further our knowledge and the development of our own investment process in this regard.