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Engagement
Engagement is an important part of the day job for all of our analysts as it contributes essential insights to our bottom-up assessment of company quality.
What we mean by engagement
The Principles for Responsible Investment (PRI) defines engagement as “interactions between the investor and current or potential investees on ESG issues. Engagements are undertaken to influence (or identify the need to influence) ESG practices and/or improve ESG disclosure.”
To us engagement runs much deeper than that. As long-term, bottom-up investors, our interactions with companies aren’t limited to ESG issues in a transactional sense. Rather, we seek to build relationships around a shared objective of improving the company’s quality and sustainability positioning for the long-term benefit of all stakeholders.
Why is Engagement important?
We believe that no company is perfect and as long-term shareholders, engagement and voting are key responsibilities for us. We see engagement as a means to mitigate business risks, protect against potential headwinds and improve sustainability outcomes.
Engagement is an important part of the day job for all of our analysts as it contributes essential insights to our bottom-up assessment of company quality. It is not a box-ticking exercise and we don’t outsource it to a third party. We want to understand the commitment and approach of key decision-makers in the business, including their attitudes towards the sustainability headwinds and tailwinds their company faces.
To do this requires us to get beyond ESG ratings and behind glossy sustainability reports, in order to build the fullest picture we can of a company. This type of understanding only comes from meaningful conversations.
"We see engagement as a means to mitigate business risks, protect against potential headwinds and improve sustainability outcomes."
Our approach
We’re active owners – not activists – and we appreciate that our job is to invest, not to run businesses. We don’t presume to understand the companies in which we invest better than the CEOs, nor tell them what to do. Hence, our approach to engagement is personal and collaborative, private but persistent.
"If a company doesn’t respond to our enquiries or refuses to take issues we raise seriously, this will inevitably lead us to reassess the way we look at that management team."
To engage effectively, it is important that we develop our own understanding of relevant industry best practices and approaches, including by commissioning external research. In the past we’ve paid for research on issues including alternatives to palm oil, hazardous chemical content and improving gender diversity.
We feel our approach of quietly but resolutely making ourselves heard, as long-term partners in the business, increases the likelihood we will achieve the outcome we’re looking for.
At the same time, a partnership is a two-way street. If a company doesn’t respond to our enquiries or refuses to take issues we raise seriously, this will inevitably lead us to reassess the way we look at that management team.
The decision to withdraw from an investment however is not one that we take lightly. If we were to sell our shares every time a business faced challenges, we could hardly expect others to take us seriously as long-term investors.
Our engagements in practice
Our engagements with companies range from identifying specific issues like the use of controversial ingredients, or improving diversity in management, to more general concerns around implied culture or time horizon.
We engage on issues such as:
In addition to identifying engagements from the bottom-up, we also adopt a strategic approach where relevant. Recent examples include net zero and plastic waste where we have engaged with a number of companies on the same issue.
We also take part in collaborative engagements as both a leader and a participant. These engagements are far-reaching, and include issues such as deforestation, plastic pellets, conflict minerals in the semi-conductor supply chain, micro-insurance and access to medicine.
