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Coronation Fund Managers

PRI reporting framework 2020

You are in Direct - Listed Equity Active Ownership » Engagement

Engagement

LEA 02. Reasoning for interaction on ESG issues

Indicate the method of engagement, giving reasons for the interaction.

Type of engagement

Reason for interaction

Individual / Internal staff engagements
Collaborative engagements
Service provider engagements

02.4. Additional information. [Optional]

We will engage on any aspect of E, S or G, as required, with the ultimate intention of driving the change we believe will be most beneficial for shareholders in the long run. Our engagement process focusses on the most material issues that a company must address and can be broken down into two main categories: Environmental and Social issues that are unresolved and that can have a material financial impact on the investment case: examples of this would be pending new carbon tax legislation, outstanding legal claims relating to health and safety risks and changing environmental regulations. These engagements allow us to quantify the impact of uncertain variables on our valuation and understand management’s actions and plans to mitigate these effects. This assists in making informed investment decisions. Governance issues: this will commonly involve discussions relating to capital allocation strategy, the composition of the Board in terms of skills and diversity, and the adequacy of key performance indicators and targets in setting the remuneration policy for senior management as well as the range of the potential outcomes. In addition, as investors with a long-term time horizon, we think it is important to understand what companies are doing to protect the sustainability of their business and the environment in which they operate. Our engagement process involves discussions on several topics including, but not limited to, waste management, health and safety processes and labour relations. This helps us to assess whether the company has a coherent strategy to deal with the environmental and social impact that its everyday operations have. A company’s awareness of these affairs and a willingness to address them in a formal, well-governed and pro-active manner indicates that the business is committed to being a good corporate citizen and protecting its sustainable long-term value. We will therefore consistently engage on a number of ESG issues throughout the year, not only at the time of particular corporate events, so that the company has sufficient time to address such concerns before any formal voting occurs. Our overriding principle is that constructive pre-emptive engagement and rectification is a far preferable outcome for all stakeholders than formulaic voting at general meetings. 


LEA 03. Process for identifying and prioritising engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate whether your organisation has a formal process for identifying and prioritising engagements.

Indicate the criteria used to identify and prioritise engagements for each type of engagement.
Type of engagement
Criteria used to identify/prioritise engagements
Individual / Internal staff engagements

Individual / Internal staff engagements

specify

          We will engage when there is a clear indication it has the potential to add shareholder value, or not engaging may negatively impact shareholder value.
        
Collaborative engagements

Collaborative engagements

specify

          on matters that will achieve the principles set out by the PRI, CRISA and the UK Stewardship Code across the industry.
        

03.3. Additional information. [Optional]

Our large and experienced team maintains constructive relationships with the boards and senior management teams of companies. We develop specific engagement strategies for each company, which are informed by our deep understanding of industries and asset classes across multiple geographies. Our dialogue is objectives-driven and continuous, influencing outcomes for the long term. When we engage with investee companies, we have an informed dialogue about ESG disclosure and practices. This ensures the process is meaningful. 

Given the focus on preserving and enhancing long-term value on behalf of asset owners, engagement can encompass the full range of issues that affect the long-term value of a business, including strategy, capital structure, operational performance and delivery, risk management, pay and corporate governance. ESG factors are clearly integral to this. Opportunities and challenges offered by ESG developments need to be reflected in the business’s strategic thinking. Equally, a full assessment of operational performance must encompass not only financials but also vital operational areas, highlighting the long-term health of the business such as the relations with the workforce; the creation of a culture that favours long-term value creation; dealing openly and fairly with suppliers and customers; and having proper and effective environmental controls in place.

Where appropriate, we also engage with like-minded shareholders to drive a more successful and coherent engagement with companies.

We collaborate with industry bodies and like-minded organisations to advocate better policies and encourage better ESG-related practice.


LEA 04. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.
Indicate whether you define specific objectives for your organisation’s engagement activities.
Individual / Internal staff engagements
Collaborative engagements

04.2. Additional information. [Optional]

We will engage on any aspect of E, S or G, as required, with the ultimate intention of driving the change we believe will be most beneficial for shareholders in the long run. Our engagement process focusses on the most material issues that a company must address and can be broken down into two main categories:

  • Environmental and Social issues that are unresolved and that can have a material financial impact on the investment case: examples of this would be pending new carbon tax legislation, outstanding legal claims relating to health and safety risks and changing environmental regulations. These engagements allow us to quantify the impact of uncertain variables on our valuation and understand management's actions and plans to mitigate these effects. This assists in making informed investment decisions.
  • Governance issues: this will commonly involve discussions relating to capital allocation strategy, the composition of the Board in terms of skills and diversity, and the adequacy of key performance indicators and targets in setting the remuneration policy for senior management as well as the range of the potential outcomes. In addition, as investors with a long-term time horizon, we think it is important to understand what companies are doing to protect the sustainability of their business and the environment in which they operate. Our engagement process involves discussions on several topics including, but not limited to, waste management, health and safety processes and labour relations. This helps us to assess whether the company has a coherent strategy to deal with the environmental and social impact that its everyday operations have. A company's awareness of these affairs and a willingness to address them in a formal, well-governed and pro-active manner indicates that the business is committed to being a good corporate citizen and protecting its sustainable long-term value.

We will therefore consistently engage on a number of ESG issues throughout the year, not only at the time of particular corporate events, so that the company has sufficient time to address such concerns before any formal voting occurs. Our overriding principle is that constructive pre-emptive engagement and rectification is a far preferable outcome for all stakeholders than formulaic voting at general meetings.

 


LEA 05. Process for identifying and prioritising collaborative engagement

Indicate whether you monitor and/or review engagement outcomes.
Individual / Internal staff engagements
Collaborative engagements
Indicate whether you do any of the following to monitor and/or review the progress of engagement activities.
Individual / Internal staff engagements
Collaborative engagements

05.3. Additional information. [Optional]

Engagements are continuous and ongoing. Monitoring and evaluation takes the form of assessing whether actions have / have not been taken by the company since the last engagement.


LEA 06. Role in engagement process

06.1. Indicate whether your organisation has an escalation strategy when engagements are unsuccessful.

06.2. Indicate the escalation strategies used at your organisation following unsuccessful engagements.

06.3. Additional information. [Optional]

The issues that we engage on are often complex and require that we have multiple discussions with the relevant companies. Our ultimate intention is to drive the change we feel will be most beneficial for shareholders in the long run. We find that a strategy of constructive, behind-the-scenes engagement directly with a company is far more productive than debating issues at a public annual general meeting (AGM) or through the press. Conversely, a strategy of merely selling out of companies without any engagement does not address societal needs and merely shifts the burden elsewhere.

ESG issues can often be resolved in direct meetings with a company's senior management team. Where appropriate, we escalate issues by writing a letter to the board of directors, setting out our key concerns. In addition, we also engage with fellow shareholders to apply more pressure for change.

If these actions still do not result in the desired outcome, we will take the appropriate steps at either the AGM or call a special meeting to highlight our grievances and make the necessary recommendations. If our best efforts are unsuccessful, we will re-assess our investment case and valuation and take the appropriate investment action in our portfolios. All our interactions are fully documented in a central ESG database which records the relevant issue, the company's response and how the issue was resolved.


LEA 07. Share insights from engagements with internal/external managers

07.1. Indicate whether insights gained from your organisation`s engagements are shared with investment decision-makers.

Type of engagement

Insights shared

Individual / Internal staff engagements

Collaborative engagements

07.2. Indicate the practices used to ensure that information and insights gained through engagements are shared with investment decision-makers.

          We believe the evaluation of ESG should be handled within the investment team who has a better understanding of the complex issues that underpin each.
        

07.3. Indicate whether insights gained from your organisation’s engagements are shared with your clients/beneficiaries.

Type of engagement

Insights shared

Individual/Internal staff engagements

Collaborative engagements

07.4. Additional information. [Optional]

At Coronation, we believe the evaluation of ESG should be handled within the investment team who has a better understanding of the complex issues that underpin each individual company. As each potential investee company operates in different industries and geographies, there is no overall generic checklist of factors that can be uniformly applied. While we do subscribe to the services of ‘specialist’ ESG research providers and consider their views, the intricacies of each investment also mean that it is inappropriate to outsource this function.


LEA 08. Tracking number of engagements

08.1. Indicate whether you track the number of your engagement activities.

Type of engagement
Tracking engagements
Individual/Internal staff engagements​

Collaborative engagements

08.2. Additional information. [Optional]

All company engagements are documented in a central engagements database which records the details of who participated, the event or issue that sparked the engagement, Coronation’s concerns or objectives, the company’s response and how the issue was resolved. Depending on the situation and context, an effective company response could be providing Coronation with more information or clarification on an issue, accepting the validity of our concerns, agreeing to make modifications to their business or policies, or making other commitments to address the issue. 


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