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 Quarterly Client Update

Quarterly Client Update

We provide regular strategy updates including portfolio changes and proxy voting, and links to our investment rationales, latest articles, statements, webcasts and videos which explore our thinking on sustainable investment, including the challenges and issues we grapple with in our search for high-quality companies.

Strategy updates: portfolio changes & proxy voting

Find out the latest updates on the strategies we manage including significant portfolio changes and proxy voting:

News from the quarter

B Corp Certification

In 2022 First Sentier Investors became a certified B Corporation (B Corp), following a two-year certification process. As a semi-autonomous investment group within First Sentier Investors, Stewart Investors is covered by this certification.

The certification means that we are now part of a community of more than 6,000 companies with a shared goal to transform the communities in which we live and operate for the benefit of the people and our planet.

Global Emerging Markets

The St Andrews Partners global emerging markets pooled funds have now been fully aligned with Stewart Investors sustainability approach.

Portfolio Explorer – climate solutions update

We use Project Drawdown - www.drawdown.org - to help us understand the role companies can play in climate solutions. We map investee companies to Project Drawdown’s collection of climate solutions, which if scaled up, can deliver the Paris Agreement’s 1.5oC temperature goal.

In mid-2022, Project Drawdown announced 11 new solutions to their collection related to ocean resources, food production, methane management, and materials manufacturing and use. Bringing the total numbers of solutions in their framework to 93.

We have reviewed portfolio companies for alignment to these new solutions and included them on the Q4 2022 Portfolio Explorer update. We have mapped 26 companies to 6 of these solutions.

Following client feedback, we have also simplified how we define company contributions to Project Drawdown climate solutions and have removed Indirect (companies that are involved in and around the solution) as a measure. Contributions are defined as either Direct (directly attributable to products, services or practices provided by that company) or Enabling/Supporting (supported or made possible by products, technologies or practices provided by that company).

For further information on the companies mapped to these new solutions please click below.

Collaborative engagement update: Tackling conflict mineral content in the semiconductor supply chain

At the end of 2021 we launched the PRI collaborative engagement: Tackling conflict mineral content in the semiconductor supply chain. The initiative was supported by 160 signatories amounting to US$6.59 trillion of assets. Since then it has attracted more interest from a number of large financial institutions.

Our engagements with companies, and industry and civil bodies, highlights that more action is required to improve practices on the provenance and reporting of conflict minerals within semiconductors.

“As a shareholder you should want us to care about conflict minerals … to address it”.

Brian Krzanich, CEO of Intel, 2014.

A brief recap of the conflict mineral issue

Tin, Tungsten, Tantalum, Gold and Cobalt1 are essential ingredients in the manufacture of semiconductors. The mining of these minerals is associated with human rights abuses. Five broad trends are impacting the sourcing, processing and demand of these minerals.

  • Mineral mining continues to shift to central Africa. 70% of Cobalt originates from the Democratic Republic of the Congo.
  • SOR2 capacity continues to shift to Asia. 90% of Cobalt is refined by Chinese owned SORs.
  • Governance over mineral traceability is outdated. OECD & RMI3 guidance is 5 and 10 years old.
  • Companies’ efforts to identify and trace the provenance of minerals has stalled, as demand rises.
  • Demands for a greener future necessitates more semiconductors and therefore more mineral mining.

Meanwhile, the associated problem of human rights abuses with mineral mining has not improved. This was underlined by testimony to US congress by Ida Sawyer, Human Rights Watch4, in July 2022.

“The humanitarian and human rights situation across the country, and especially in the east, remains dire. Nearly 5.5 million people are displaced across the country, and one in three people are facing severe or acute food insecurity, according to the United Nations. Some 120 armed groups are still active in eastern Congo, including several groups that include fighters from neighboring Burundi, Rwanda, and Uganda … Many of these groups, as well as their backers among the Congolese political and military elite, control lucrative mineral resources, land, and taxation rackets. Many of them have also recruited children among their ranks”.

Over the last decade, electronic companies have made insufficient progress on tracking the provenance and integrity of minerals in their supply chain. We need to re-double our engagement with companies to encourage better mineral sourcing, tracking and reporting practices.

What have we done in the last 6 months?
  • Continued to engage with companies, and we have met with nine companies in person.
  • Engaged with industry bodies. We attended the Responsible Minerals Initiative (RMI) annual conference and understand we are the first known investor to have done so.
  • Engaged with civil bodies. We have met with Global Witness to discuss the findings of field research they recently carried out and published in their report: The ITSCI Laundromat: How a due diligence scheme appears to launder conflict minerals. A summary of the findings is available in this short interview.
What have we found?
  • The issue of improperly sourced minerals and the associated human rights abuses within the semiconductor supply chain is more severe than we first anticipated.
  • Actions by companies to address the issue is generally poor and progress has stalled.
  • Frustration is rising amongst industry body members with their lack of impact.
  • Geopolitical tensions are increasing government’s focus on supply chain transparency to identify frailties. Many companies are focusing resources on supply chain mapping. This is beneficial.
Conclusion

It is extremely early days for this multi-year engagement but it is clear that tracing mineral provenance is an extremely complex challenge for companies. Progress is slow. While there is a unanimous desire to improve practices, some companies are more eager and able to meet this challenge than others. Surprisingly, the strength of ambition to improve practices has been independent, so far, of company size or industry prominence. This may point to complacency within certain areas of the industry.

We will continue to update you on any progress we make and any challenges we encounter.

Footnotes & Reference Material

1 Collectively known as conflict minerals with the exception of Cobalt which technically sits outside that legal definition

2 SOR = Smelting and Refining

3 RMI = Responsible Minerals Initiative

Child Labor and Human Rights Violations in the Mining Industry of the Democratic Republic of Congo. US Congress 14/7/22.

Latest insights

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Stewart Investors Quarterly Client Update Q4 2022

1 October - 31 December 2022

Investment philosophy

  • We are stewards: Our role is to allocate society’s capital to productive uses, in accordance with our Hippocratic Oath
  • We are long term: Our time horizon is measured in years, not weeks, and we value companies accordingly
  • We invest only in companies contributing to a more sustainable future: We engage constructively as owners to help companies on their sustainability journeys
  • We invest only in high-quality companies: We seek out companies with exceptional cultures, strong franchises and resilient financials
  • We believe capital preservation is important for capital growth: We define risk as the possibility of the permanent loss of client capital

Investment objective

To generate attractive long-term, risk-adjusted returns by investing in the shares of high-quality companies that are particularly well positioned to contribute to, and benefit from sustainable development.

Important information

This material has been prepared and issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017) (FSI AIM), which forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group. Stewart Investors is a trading name of FSI AIM.

It is directed at persons who are professional, sophisticated or wholesale clients and has not been prepared for and is not intended for persons who are retail clients. A copy of the Financial Services Guide for FSI AIM is available from First Sentier Investors on its website. This material contains general information only. It is not intended to provide you with financial product advice and does not take into account your objectives, financial situation or needs. Before making an investment decision, you should consider, with a financial adviser, whether this information is appropriate in light of your investment needs, objectives and financial situation. 

Any opinions expressed in this material are the opinions of the individual author at the time of publication only and are subject to change without notice. Such opinions may substantially differ from other individual authors within First Sentier Investors.

MUFG and its subsidiaries do not guarantee the performance of any financial products mentioned or the repayment of capital in relation to any financial products mentioned. Investments in any investment-type financial products mentioned are not deposits or other liabilities of MUFG or its subsidiaries, and investment-type products are subject to investment risk including loss of income and capital invested. 

To the extent permitted by law, no liability is accepted by FSI AIM, MUFG nor their respective affiliates for any loss or damage as a result of any reliance on this information. This material contains, or is based upon, information that we believe to be accurate and reliable, however neither FSI AIM, MUFG nor their respective affiliates offer any warranty that it contains no factual errors. No part of this material may be reproduced or transmitted in any form or by any means without the prior written consent of FSI AIM.

Some of the information within has been compiled using data from a representative account. This information relates to an existing Stewart Investors strategy and has been provided to illustrate Stewart Investors’ expertise in the strategy. This material is provided for information purposes only and does not constitute a recommendation, a solicitation, an offer, an advice or an invitation to purchase or sell any fund and should in no case be interpreted as such. Past performance is not a reliable indicator of future results.

References to specific securities (if any) are included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. Any securities referenced may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time.

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