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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 engagement is prioritised at a company level, and we engage on issues including: pollution; natural resource degradation; biodiversity and climate change; fair wages, gender pay gaps and incentives; governance; human rights and modern slavery; diversity, equity, and inclusion; as well as addictive products.
Engagement takes many forms but we broadly adopt three main approaches, without any specific order of priority, often utilising more than one method over the length of the engagement:
Bottom-up: driven by company analysis and monitoring, by engaging directly with companies we seek to build strong, long-term relationships.
Collaborative: tackling systemic issues that affect investee companies, and companies outside our fund portfolios. We take both lead and supporting roles, working together with peers, the wider industry and clients.
Thematic: cross-cutting issues identified by the investment team, often supported by commissioned research, and always related to company circumstances.
Our engagement activity is also closely linked to our research tenders, and the wide range of organisations, initiatives and industry bodies we support.
Engaging for change: tackling plastic pollution in India
Our engagement work to help tackle plastic pollution in India, initiated in 2016, demonstrates our approach in action.
