Quarterly Client Update: Fourth Quarter 2023

Quarterly Client Update: Fourth Quarter 2023

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

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News from the quarter

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

We remain grateful for the continued support of our PRI collaborative engagement: Tackling conflict mineral content in the semiconductor supply chain, an initiative that first began in 2021. We are pleased to inform you of some recent developments and plans.

Recent achievements
  • Strengthened relationship with the Responsible Minerals Initiative (RMI).1
  • Built trust with leading US electronics companies, who are also steering committee members of the RMI.
  • Chaired and hosted a closed-door workshop in October 2023, endorsed by the RMI, with sixteen leading electronic companies.
  • Became the first investor to speak at the RBA2 and RMI’s Annual Conference in Santa Clara, California on the positive role of capital.
  • Engaged with 21 electronic and industrial companies on mineral traceability.
  • Commissioned Kumi Consulting Ltd (Kumi) to deepen our knowledge, contacts and engagements with companies, trade bodies and organisations like the OECD.
  • Developed, with the help of Kumi, engagement guidelines for initiative supporters, and other investors, to improve their interactions with companies.

RMI Membership

Members of the RMI debated, over a number of months, whether they should allow investors to join their trade body. There were some initial reservations, however a number of company representatives and steering committee members of the RMI and RBA Board Liaison have been strong supporters. There is a growing feeling amongst RMI members that investors could bring a new and constructive perspective to help influence improvements along mineral supply chains. Representatives of the companies and other RMI members believe: “there is a big role for investors, they have a different point of leverage”.

We are pleased that the RMI has taken the significant step of allowing investors to become members of their trade body. This is one of the objectives we set last year.

We believe membership will provide initiative supporters and investors with a deeper understanding of mineral supply chains and greater engagement credibility. Membership should enrich engagements and highlight the importance of mineral traceability at the C-suite level (where we know, through our interactions with companies, that knowledge on this topic is weak). With the strength of collective voice, we must encourage CEOs not to cut corners and to invest more resources to achieve an untainted mineral supply chain, thereby minimising human rights abuse.

What more have we learned?
  • The issue is grave. During a meeting, Fairphone3 explained that even they believe they are only 70% free of tainted minerals.
  • Supply chain complexity means that even determined companies, such as Fairphone, can only map four out of the twelve tiers of companies in their supply chain.
  • Accordingly, few CEOs have a deep awareness of the challenges in their mineral supply chain.
  • Supply chain departments are often viewed as “cost drags” and are inadequately resourced.
  • Many supply chain managers are ‘covert NGOs’ who are frustrated by the lack of impact.
  • Upcoming EU regulations will pressurise companies and investors to focus more intently on human rights abuses in their supply chains.
What we plan to do next
  • Join the RMI as an investor member and seek to establish an investor working group.
  • Share details to initiative supporters and other investors to consider joining the RMI investor membership when it becomes available.
  • Encourage more investors to collaborate on this initiative.
  • Consider broadening the scope of the initiative beyond the 3TGs in line with EU regulations to include all minerals.
  • Encourage initiative supporters to engage on this topic when meeting electronic companies.
  • Engage with banks on lending practices to smelters or refiners (SORs) in the Asia Pacific region.
  • Encourage companies to explore upstream certifications (IMRA4) in their supplier requirements.
Conclusion

We recognise that engagement on this topic will be a long journey, over a number of years, but we hope that by building a closer relationship with the RMI and influential companies in the electronics supply chain we are a step closer to effecting change.

Footnotes

1 Responsible Minerals Initiative (RMI), a trade body with over 400 members, https://www.responsiblemineralsinitiative.org/

2 Responsible Business Alliance (RBA), the parent organisation of the RMI, and the world’s largest industry coalition dedicated to corporate social responsibility in global supply chain, https://www.responsiblebusiness.org/

3 Fairphone is a Dutch electronics manufacturer that designs and produces smartphones and headphones. It aims to minimise the ethical and environmental impact of its devices by using recycled, fairtrade and conflict-free materials, maintaining fair labour conditions throughout its workforce and suppliers, and enabling users to easily repair their own devices through modular design and by providing replacement parts.

4 IMRA: The Initiative for Responsible Mining Assurance. https://responsiblemining.net/what-we-do/assessment/

Collaborative engagement update: Investor Initiative on Hazardous Chemicals (supported by ChemSec)

In line with our ongoing research into the risks of PFAS, polluting man-made substances known widely as “forever chemicals”, we became supporters of ChemSec’s Investor Initiative on Hazardous Chemicals (IIHC).

Prevalent in a wide range of consumer products for decades due to their non-stick qualities and ability to repel grease and stains, forever chemicals have proven toxic effects and do not break down in the natural environment, making them a threat to people and planet. We look forward to participating in this initiative, which will see 50+ investors representing over $10 trillion in AUM engage with major chemical producers to raise awareness of and therefore reduce the risk of these hazardous substances.

To learn more about the initiative, please visit the ChemSec website.

Latest insights

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Stewart Investors Quarterly Client Update Q4 2023

1 October - 31 December 2023

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.

This publication is provided by First Sentier Investors (Australia) IM Ltd (‘FSI AIM’ or ‘Stewart Investors’) in good faith and is designed as a summary to accompany the Product Disclosure Statement for the Stewart Investors Worldwide Leaders Sustainability Fund (‘the Fund’). The Product Disclosure Statement for the Fund is available from FSI, or Implemented Investment Solutions Limited (‘IIS’ or ‘the Issuer’) and on https://disclose-register.companiesoffice.govt.nz/ or https://iisolutions.co.nz/fund-hosting/documents-and-reporting-2/.

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