Coronation has a single investment philosophy which applies across all strategies and products and is deeply ingrained within the entire Coronation investment team, namely, that of being a long-term, valuation-driven investment house. The long-term nature of the investment philosophy requires us to incorporate ESG and sustainability issues into our investment process and in every investment decision that we make as we need to account for these factors in trying to understand a business’ long-term worth. Coronation explicitly integrates ESG factors in the rating and valuation of the relevant investment. We prefer this approach to assigning a specific ranking to companies comparing their relative ESG merit.
Given the differing nature of companies’ underlying business models, our approach is for our research analysts to treat ESG issues on an individual case-by-case basis. We focus on the material ESG issues that are considered likely to affect stakeholders, as this will ultimately have an impact on corporate performance and investment performance. In considering ESG factors, we recognize the importance of focusing our attention and time on those ESG issues that can have the most meaningful impact on a company’s long-term prospects. Accordingly, a significant amount of time is spent studying the corporate governance of the companies we invest in. Corporate governance lies squarely within the circle of competence of any institutional investor, and includes capital allocation, remuneration policies and empowerment deals (in the South African context). We favour transparency and comprehensive reporting as this provides the information basis to assess whether a company adheres to high standards of corporate governance and integrates ESG considerations. The environmental and social pillars are more complex, subjective and prone to differing approaches from subject matter experts. Social objectives vary significantly between investors around the world and issues are often fraught with ambiguity. In addition, each business will face its own unique set of environmental and social circumstances. While we systematically review and investigate the potential significance of environmental and social issues, we are cautious to make definitive rulings on complex issues. Our focus centers around areas related to climate change and resource scarcity (e.g. carbon emissions, water usage, energy efficiency, waste management, general environmental impact ); social controversies, health and safety standards, matters relating to labour policies and practices; approach to data security and privacy and in countries like South Africa, the company’s approach to and status of Black Economic Empowerment.
As part of our investment decision-making process, Coronation will weigh up whether the benefits to our clients will be best served by avoiding companies that are poorly governed or that have shortcomings in the environmental or social pillars. We will also evaluate whether we can influence such companies to improve by active involvement through discussions with investee company management, by exercising our voting rights (on behalf of our funds and clients) or through other means of enhancing shareholder value. Coronation will always exercise caution to ensure that in adopting this approach, we do so in a manner which is constructive to the long term value of the business, and avoids conflicts of interest, such as becoming involved in the management of those investee companies.
Coronation explicitly integrates ESG factors in the rating and valuation of the relevant investment. All investment professionals are required to consider ESG factors in the valuation process and are therefore responsible for ensuring that the ESG considerations relevant to a particular company are included in their long-term valuation of a company. As we rigorously apply our investment methodology of (i) valuing stocks on long-term sustainable earnings, and assigning a fair price-to-earnings (P/E) multiple to those earnings or (ii) for debt securities, assessing the impact on issuer cash-flows and ability to repay debt, ESG will be both implicit and explicit in every investment decision that Coronation makes. We will accordingly produce sound quantitative and qualitative analysis of all significant exposure to ESG issues as part of each investment case. Given our single investment philosophy which is consistently applied to all of our products and strategies managed by Coronation, this policy applies across all such strategies.
Coronation will not explicitly screen out any shares due to ESG factors, instead we may require a greater riskadjusted upside or a higher yield before investing in relation to companies with a higher ESG risk profile. The only exception would be where we are concerned about a significant lack of corporate governance in a potential investee company and where, in Coronation’s view, it is unlikely that we would be able to influence management of the potential investee company to improve their corporate governance to the extent required. We will also, depending on the circumstances, take instructions from segregated account mandate clients to exclude from their mandate’s investible universe certain companies that they object to on environmental or social grounds.
Coronation is an active shareholder and we will engage with company management and Boards in executing our fiduciary responsibilities, including through calls, in-person meetings, letters and written statements expressing our views. When there are specific concerns, our first approach is to engage with management to deal with the respective issues. If this fails to deliver the appropriate action, we then escalate the issue to the Board. Where appropriate, we also engage with like-minded shareholders to drive a more successful and coherent engagement with the company. If these actions still do not result in the desired outcome, we will take the appropriate steps at either the annual general meeting or call a special meeting to highlight our grievances and make necessary recommendations. If our best efforts are unsuccessful, then we will re-assess our investment case and valuation and take the appropriate investment action in our portfolios. 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.
Coronation is an active shareholder and applies its Proxy Voting Policy which requires us to vote on resolutions for all international and domestic holdings, regardless of the size of these holdings.