In our view, engagement with portfolio companies can enhance positive social and environmental impact and create lasting value for shareholders. We see material environmental, social, and governance (ESG) issues as strategic business issues that can affect a company’s financial performance, competitiveness, and sustainability. The better impact investors understand material ESG issues, the more informed their investment decisions.
We believe in taking a hands-on approach to engagement, meeting in person with boards and management teams, writing letters, or hosting calls multiple times each year. Further, we think productive engagements should aim for three primary outcomes:
- Understanding material ESG issues facing the company
- Appreciating matters relevant to our investment thesis and our impact thesis
- Setting milestones and develop key performance indicators (KPIs) to measure the impact generated
Sample 2019 engagements and outcomes
Active engagement can help manager identify where improvements can be made and encourage companies to measure their impact — positive and negative — and report meaningful data. Ultimately, engagement creates an important feedback loop and a mechanism for delivering and measuring impact. In our view, successful engagement outcomes result in better alignment between all stakeholders.
We engaged with an innovative company producing plant-based meat substitutes, as we want to better understand the potentially negative health effects of a high-sodium product. While there are clearly environmental benefits to alternative proteins, we must weigh potential unintended negative consequences in our investment decision.
We avoided a hazardous-waste removal and environmental services company, given exposure to traditional energy revenue through acquisitions. While we had repeatedly engaged with management about disposing of these assets, they continued to delay divestiture. Ultimately, we felt this investment violated our zero-petroleum-exposure policy.
After suggesting that an education company capture data showing graduates’ wage differentials and improved job opportunities, management is now tracking this data. This information can help quantify the company’s impact and enhance its value proposition to students and investors.
We engaged with an affordable housing company on customer satisfaction and employee well-being. We were impressed with how clearly its sustainability initiatives are connected to its business strategy, and how much effort the company puts into understanding how well its solutions meet the needs of buyers and tenants. The company actively works toward minimizing employee turnover and meeting stakeholder needs in inventive ways.
We engaged with a low-cost health insurer operating in Brazil’s rural markets and improving access to quality care. With nearly two decades at the helm, the CEO has deep influence over all aspects of operations. Given his importance, age, and tenure, we discussed succession planning with the CEO and the board. We were pleased that the company compiled a list of potential successors, and we will continue to engage on this topic as a sounding board for this growing company.
We discussed water infrastructure and conservation with the board of a US company. The engagements centered on the company’s dual-class share structure and resulting misalignment among stakeholders. While we have yet to make meaningful progress, the company has shown improvement in linking compensation and incentive structure to performance, another of our engagement topics.
To ensure the viability of a theory of change, or impact thesis, for each company, we believe in seeking to support and influence positive outcomes through informed and active ownership. Further, we think approaching engagement in similar fashion as investment research — leveraging multidisciplinary analysis that spans equity, credit, and ESG perspectives for example — can lead to better outcomes.
As a fiduciary of our clients’ capital, we believe it is our duty to understand the full mosaic of a company’s business model, industry structure, and capital allocation. We also believe this approach is the most effective way to achieve our intended positive impact on people and the planet.
Please explore our 2019 impact activity and outcomes.
The examples shown are presented for illustrative purposes only and are not to be viewed as representative of actual holdings. It should not be assumed that any client is invested in the (or similar) examples, nor should it be assumed that an investment in the examples has been or will be profitable. Actual holdings will vary for each client, and there is no guarantee that a particular client’s account will hold the examples presented.