For super funds and their advisers

How to fit ESG processes into UN’s sustainability goals

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While most investment managers have worked hard at incorporating ESG philosophies into their investment processes in recent years, under the overarching aim of sustainability, marrying the practicalities with the United Nations’ Sustainable Development Goals (SDGs) is not as simple as it may seem.

Martin Currie, a long-time advocate of the integration of ESG principles within traditional active equity management, has focussed its latest edition of ‘Stewardship Matters’, one of the firm’s regular publications for clients on developments in the ESG space, on the SDGs for investors.

David Sheasby, the firm’s global head of stewardship and ESG, sums up the issue: “Although the 17 SDGs were ostensibly targeted at governments, the private sector also has a significant part to play in achieving them. As such, addressing the SDGs not only creates huge opportunities for companies providing solutions to these challenges, but also a blueprint for the kind of behaviours that businesses should adopt to enable long-term sustainable growth.”

David Sheasby

He says that it is clear from work on the subject that the SDGs 169 specific underlying targets are more relevant to companies than the goals themselves. This has led to analyses of the extent to which companies have been able to address the targets “with more of an emphasis on how – rather than just what – goods and services are delivered”.

The report says: “We have found that mapping company products and services to specific SDGs and targets does present challenges, as although companies have a crucial role to play in sustainable development, the targets were not written for the purpose of corporates or investors. In some cases, there are clear linkages to the aims of the specific targets.

“Companies tend to be complex and surprisingly few will be fully aligned with the targets. Ultimately, in many cases there is therefore an element of informed judgement by our team on materiality – both to the company itself and to the impact on the target. This is where, as long-term owners, we are able to leverage our extensive knowledge of the companies we invest in as well as the meaningful engagement we have with them.”

Apart from its direct engagement with companies and active voting at meetings, Martin Currie also seeks to engage with clients about their own ESG aspirations and concerns. For instance, in the latest edition of ‘Stewardship Matters’, Sioned Churchill, the director of grants at the Trust for London, has written a foreword including the Trust’s history of looking to tackle poverty and inequality over the past 130 years.

For instance, the Trust has an initiative aimed at addressing issues behind the employment rate for young black men in London, which is significantly lower than for young white men, particularly in financial services.  For graduates, the disparity is even more stark. Young black male graduates are up to four times more likely to be unemployed than young white male graduates.

“A key element of changing this situation is encouraging employers to take action on their diversity and inclusion policies,” she says. The Trust of London started to work with Martin Currie, its fund manager, to see what practical initiatives that could be undertaken together. Churchill says Martin Currie was able to direct the Trust to another organisation which it now partners with – Investment 20/20 – which tries to attract more diverse talent into funds management.

The stewardship report shows that Martin Currie covered 32 markets in the second half of 2020 and engaged with 168 companies, resulting in 429 total engagements. It attended 220 shareholder meetings and voted against management proposals at 70 of them. The most common topic resulting in votes against was “director related”.

Australia tends to be over-represented in engagements for the size of its stock market, coming in third after Pan Asia (including Japan) and Europe and ahead of North America and the rest of the world. For specific votes against management, Australia had the most of any region or country in that six-month period followed by Europe and Pan Asia.

Before racing to the wrong conclusions about Australian companies, however, it should be noted that Martin Currie’s Australian equities strategies are the largest single-country exposures for the firm. Plus, Australian companies, unlike many others internationally, almost exclusively report on a June 30 basis, and therefore have their AGMs in the second half of the year.

Australian or New Zealand companies engaged on diversity issues during the half year included: Growthpoint Properties Australia, AGL Energy, Spark NZ and Amcor. In its classification of all engagements for the firm, the manager says 94 were “completed” but 335 were “ongoing”.

In a separate statement, Martin Currie’s Melbourne-based Reece Birtles, the CIO of Australia and NZ, and Will Baylis, portfolio manager, said Australia’s shareholder meetings were becoming more of a forum for companies to update shareholders on the outlook for earnings and for shareholders to push their ESG agenda.

“We believe that ESG factors create risks and opportunities for investors and that it is important to consider these when making an investment in a company, and for the companies themselves to manage these appropriately,” they said.

In the most recent reporting season, the more upbeat tone to consensus revisions, the muted price reaction to bottom of cycle earnings data, and the positive outlooks from companies themselves were in keeping with the manager’s positive outlook for the Australian market.

On company reporting, Birtles and Baylis said information on the risks and actions taken to deal with climate change and waste was more commonly being reported.  “Almost all companies are also now submitting a sustainability report as part of their annual report, often with links to the SDGs. Many companies have dedicated Sustainability teams and are providing detail on issues around waste, climate change, employees health and safety during COVID-19… Some companies are now also highlighting plans for their energy transition to carbon neutrality. AGL Energy was targeted this year by impact investors around their transition planning disclosure. Aurizon Holdings also launched their first climate strategy and action plan to be net zero by 2050.”

Note: Martin Currie is a sponsor of Investor Strategy News. Any views expressed are those of the author and not necessarily those of Martin Currie.

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