Research Tender Overview

Research Tender Overview

This document outlines what we mean by a Research Tender and provides examples of the projects we have commissioned, including a summary of their main insights and engagement items.

Download PDF version

Introduction

This document outlines what we mean by a Research Tender and provides examples of the projects we have commissioned, including a summary of their main insights and engagement items.

At Stewart Investors our investment process is augmented through the use of external research. We find this third party research helpful to challenge our thinking and extend our understanding of sustainable development issues. Historically this research was predominantly from a panel of sell-side providers, whom we paid to access their research product. However, more recently we have sought to broaden our knowledge and provider base by commissioning research from out-with this pool, paying for one-off, standalone articles of research.

The process by which we select and commission this work is referred to as a Research Tender.

The tender process is driven by the Investment team and supported by the Research Management team, who are responsible for coordination of the process, including: provider selection, management of submissions and conclusion of legal matters with the successful provider.

Why do we commission research?

A vital part of our investment process is trying to understand better in which areas the companies we invest will face sustainability headwinds and the challenges faced by specific industries and sectors.

We often find our key questions on these matters, crucial to our evaluation of investment opportunities and risks, were not adequately addressed by ‘off the peg’ research.

With a view to exploring the market for new research talent and also to fill the gap in research available on specific issues and areas of interest, we commenced the research tender process in 2015.

We find that commissioning research in this manner is beneficial, because we can define the focus, scope and timing of the projects.

It has also allowed us to select and establish relationships with a wide range of partners with different experiences, perspectives and insights. This includes academics, independent research institutes, consultants, non-governmental organisations and private individuals, as well as the research teams of more traditional brokerage groups and banks.

Overview of the tendering process

When a new topic of interest is identified, the Investment team will appoint a project sponsor who will act as a main point of contact and be responsible for any decision making throughout the duration of the project. The sponsor will also produce a project overview to outline the purpose and scope of the project. This is sent to the Research Management team who will work with them to draw up a shortlist of providers, who will then be invited to tender to complete the research. This list of providers may also include a research marketplace, who will in turn advertise the project to their client base. 

If interested in tendering to complete the research, providers will be asked to submit a proposal to outline how they would conduct the research, over what timeframe and at what price. On a predetermined closing date, all submissions will be collated and sent to the analyst sponsoring the project. They will then review the proposals and select a successful applicant, who will be notified of their decision.  Ahead of commencing any work, a legal contract will be drawn up to formalise the agreement between Stewart Investors and the selected provider.

The sponsoring analyst will liaise with the provider throughout the process to assist with any questions as they may arise. Upon completion of the research, it will be circulated round the Investment team for comments and feedback, ahead of concluding the project. 

To close out the research, the sponsor will complete a project ‘precis’. This provides a synopsis of the research, its key findings and also details any engagement priorities. The precis will also look to assess the success of the project and our commissioning process, with a view to streamlining our approach as required.

What lessons have we learned?

The process has been a learning curve, and we have aimed to adapt and refine our approach over time.

Historically the research tenders were released in ‘rounds’. However, it became obvious that commissioning a project was more time consuming than anticipated, both in terms of administration and also for the analyst sponsoring the project. Interest in the process far exceeded our expectations, with the first round attracting 62 proposals for 8 projects. Consequently, we now commission projects on an ad hoc basis, as required.

Additionally, we now commission projects by targeting a specific set of providers, rather than publically releasing all tenders to the market. By advertising publically, it became apparent we were receiving proposals from providers we did not feel looked at the world in same way as us, thus reducing the likelihood of a successful outcome. Using a more focused approach appears to yield more relevant proposals. Further, the process has helped build new relationships with a number of providers whom we now know well and understand their areas of expertise. We can call on these providers should a relevant subject matter arise.

On occasion we have had projects where the output has fallen short, or drifted away from our initial aim. We now appreciate it is critical we are clear about the scope of the project and ask the right questions from the outset. A hands-on approach from the sponsoring analyst throughout the process is also crucial to ensure things stay on track and we get the insights and information we are after.

Research tenders in numbers

(between January 2016 and October 2020)

  • A total of 50 individual research tenders have been commissioned 
  • These 50 projects have covered 35 individual research subjects 
  • 31 individual providers have conducted the work 
  • 19 of these providers have been new to the team 
  • One provider has gone on to undertake six individual projects 

Tenders by provider type

How does this support our Investment Philosophy and enhance our investment process?

As outlined above, the research tender process has helped us broaden our knowledge on specific topics and improved our understanding of matters we feel are fundamental to the investment case of some of our portfolio holdings. 

The research generated has also added value by: influencing investment decisions, providing thought stimulus and prompting engagement items.

It has also helped us form long-term partnerships with providers of insightful research whom we otherwise would not have known. This in turn supports our aim to have access to a broad range of analysis, and to reward research and providers who add real investment value.

Case studies

B Corps and Benefit Corporations

Background

In 2017, we released a public tender for a research project to help us understand the emerging trend of B Corps and Benefit Corporations.

B Corps are companies accredited by B Lab as meeting certain ESG criteria, while Benefit Corporations are a new form of legal corporate incorporation, which involve a high degree of transparency around sustainability issues, including a binding legal commitment on directors to consider the interests of all stakeholders, not just shareholders. They seemed to us a potential method of countering the short-termism and an unhealthy focus on ‘shareholder value’ that often drives poor decision making, particularly with regards to long-term sustainability issues. Moreover, we had begun to see a number of listed companies in our markets electing to make the switch and become B Corps, including a large holding in our Global Emerging Markets Sustainability strategies at the time, Natura Cosmeticos.

Why did we commission the Project?

The tender was designed to explore the issues and to help us deduce whether we should be encouraging more listed companies to make the shift. We received 13 submissions, and selected KKS Advisors, a strategy consultancy based in Boston and London to undertake the research.

The final report covered how B Corps and Benefit Corporations function, the motivations, benefits and costs associated with the transition, and the barriers and solutions for publicly-listed companies. It also provided ample case studies to give practical examples from around the world.

Main Insights/Engagement Items?

The report deepened the team’s understanding of the legalities around B Corps and Benefit Corporations, and helped inform us of some of the considerations our investee companies might have around making the change. The report was also picked up by the Office of Legislative Research for Connecticut, to be used to help legislators think through policy options.

We continue to come across B Corps and Benefit Corporations in our search for long-term investment ideas. Our understanding of what this means in practice and the signal it sends has certainly been enhanced by the research undertaken for us by KKS.

Packaging leaders in emerging markets consumer companies

Background

It is easy to assume plastic packaging pollution is a ‘developed country’ issue for richer countries to address first.  The unfortunate reality is that the human burden of plastic packaging pollution falls most heavily on low income families in emerging markets, in terms of both direct health impacts and the environmental degradation of the land and water they depend on for their livelihoods. 

Consequently, in 2016, we released a public tender for a research project to help us understand the progress being made towards packaging sustainability by emerging markets consumer companies.

Why did we commission the Project?

The report aimed to improve our understanding of three specific areas in respect of packaging sustainability:

  • To understand the financial liabilities that consumer companies may face over time if regulations were introduced to internalise the external costs of plastic pollution onto company balance sheets.
  • To understand how management teams of these companies think about this risk and develop strategies to deal with it, providing valuable information on the broader quality of management and their ability to develop long-term strategic thinking on sustainability challenges. 
  • There are several listed recycling companies which are of potential interest to us as investors. We wanted to understand the changing landscape around packaging sustainability, to help us to frame the long-term challenges and opportunities they face.

We received nine submissions, and selected the Institute for Sustainable Futures (ISF) part of the University of Technology, Sydney (UTS), to undertake the research.

Main Insights/Engagement Items?

The report outlined the complexity in packaging and how good companies need to make informed decisions about inherent trade-offs between alternative sustainability strategies. 

We learnt much from the willingness of companies to engage and have since sold several of the companies who refused to participate (Dairy Farm, Standard Foods, Juhayna). While not sold specifically for their failure to take packaging sustainability seriously, their unwillingness to engage can be interpreted as a wider reluctance to evolve their businesses to ensure they are fit for purpose over the next decade and more. 

Packaging efficiency was identified as the most natural entry point for companies going on this journey, providing us with a tool to engage smaller companies at the beginning of their journey. 

There were also a number of company specific insights:

  • There was evidence of clear leadership from the top five companies (Henkel, Unilever, Natura, Beiersdorf and Tesco) who consistently scored highly across most dimensions of packaging sustainability.
  • Confirmation, if any was needed, of Natura’s environmental leadership. It was way ahead of other GEM-based consumer companies in addressing the packaging challenge.
  • We also connected Natura with an Indian company who was much earlier on its journey. The Indian company was keen to learn from Natura. This partnership reflected very well on both companies.
  • As a result of this and other ongoing engagement, Vitasoy recently announced a number of initiatives to reduce single-use containers and waste in Hong Kong.

The report was subsequently spotted by the Australian Packaging Covenant Organisation (APCO)* who at the time were considering how to improve the annual reporting process for its member companies. They consequently commissioned ISF to refine and expand the framework it had developed for the Stewart Investors’ research, for use by its members as a self-assessment tool for packaging sustainability.

*APCO is an independent body charged by the Australian government to make all packaging recyclable, reusable or compostable by 2025.

The report also led to the setup of a Packaging Round Table in India in July 2018. Organised by Stewart Investors in partnership with ISF, the event was attended by industry and academic experts, alongside business representatives from a number of Indian consumer corporates, who convened to share knowledge and work collaboratively with a view to addressing the issue of plastics pollution.

This was our first time working with the ISF/UTS. We were impressed by their work and the project helped to identify them as long-term research partners. UTS have since gone on to undertake a number of research projects on our behalf.

Sustainable sourcing of soy

Background

In 2019 we released a tender for a research project to help us understand key sustainability issues in soy production.

Feeding the planet’s growing population will become increasingly difficult unless land remains productive. But land is under growing human pressure, and this pressure is being intensified by climate change. Agriculture, forest loss and land use change are major contributors to climate change, responsible for almost a quarter of greenhouse gas emissions. 

Soy is one of several agricultural commodities driving major land use change, forest loss, increased emissions, social displacement and some problematic aspects of genetic modification. Like palm oil, soy is deeply but almost ‘invisibly embedded’ in the food system and in cosmetics production. As a result, consumer companies have largely been shielded from the externalities of soy production and trade – more so than for many other commodities.

Why did we commission the Project?

Our tender was designed to identify the key sustainability issues in the soy value chain and how these are addressed by 10 consumer companies. 

We received 10 submissions and selected NIRAS-LTS International, an Edinburgh-based environmental consultancy and project management firm (part of the NIRAS Group) to undertake the project.

Main insights/Engagement Items

The report identified seven main sustainability issues: 

  1. Deforestation and biodiversity loss 
  2. Genetically modified organisms, the (sometimes associated) application of herbicides and pesticides, and water contamination 
  3. Environmentally damaging outputs such as greenhouse gas emissions and non-recyclable packaging 
  4. Land grabbing and the treatment of local communities 
  5. Treatment of workers and safeguarding of rights, health and safety 
  6. Sustainability leadership and engagement with relevant protocols, certification initiatives and sustainability standards
  7. Supply chain traceability 

The research also assessed and ranked the 10 companies on their approach to these issues and highlighted issues for engagement.

The report helped us appreciate that a small number of producers and trading houses have considerable control and oversight of key parts of the soy value chain, and thus over many of the sustainability issues in soy production. Brand owners and retailers (including the companies assessed) have limited direct influence over the nature of soy supply, including where and how it is grown. 

As a result of this project, we are better equipped to engage with the companies concerned on the research findings and point to areas where improvements can be made. In particular the report identified:

  • Some recommendations that enabled us to engage with Vitasoy.
  • Unilever, Danone and Nestlé as leaders based on the sustainability criteria.
  • Very few Western companies are taking a strict no-GMO stance or a pro-active stance on GMO labelling, but Asian companies are.
  • Few companies have publicly stated ambitions to make soy supply chains transparent and traceable and only two have a robust, comprehensive soy specific policy. However, several have produced commentary on their approach to sustainable soy sourcing.

Subscribe to our updates

To get regular updates and content from Stewart Investors, please register here.

Investment terms

View our list of investment terms to help you understand the terminology within this document.

Important Information

This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should consider, with the assistance of a financial advisor, your individual investment needs, objectives and financial situation.

We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication. To the extent this material contains any measurements or data related to environmental, social and governance (ESG) factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in future if circumstances change.

To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.

To the extent this material contains any ESG related commitments or targets, such commitments or targets are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments and targets are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any commitments and targets set out in this material are continuously reviewed by the relevant investment teams and subject to change without notice.

About First Sentier Investors

References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group. Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners, all of which are part of the First Sentier Investors group.

We communicate and conduct business through different legal entities in different locations. This material is communicated in:

  • Australia and New Zealand by First Sentier Investors (Australia) IM Ltd, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)
  • European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI reg no. C182306; reg office 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; reg company no. 629188)
  • Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First Sentier Investors, FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners are the business names of First Sentier Investors (Hong Kong) Limited.
  • Singapore by First Sentier Investors (Singapore) (reg company no. 196900420D) and this advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W), RQI Investors (registration number 53472532E) and Igneo Infrastructure Partners (registration number 53447928J) are the business divisions of First Sentier Investors (Singapore).
  • Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611)
  • United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (reg. no. 2294743; reg office Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB)
  • United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167)
  • other jurisdictions, where this document may lawfully be issued, by First Sentier Investors International IM Limited, authorised and regulated in the UK by the Financial Conduct Authority (FCA ref no. 122512; Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB; Company no. SC079063).

To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.

© First Sentier Investors Group