The long-term focus of our stewardship activities
Our long-term stewardship priorities are those we consider most material to the financial returns we deliver and consistent with our commitment on sustainable investing.
For each priority, we have defined medium-term themes on which to focus our engagement.
We want to invest in companies where the entire board is effective and fully engaged in the affairs of the company; companies that are open and honest in their communications with all shareholders, and which acknowledge and learn from their mistakes. We believe directors should represent all stakeholders equally, and minority shareholders should be protected from abusive actions by controlling shareholders.
Our medium-term governance themes are board and management diversity and capital allocation. Sample engagement questions that may flow from these themes are provided below.
Current theme: Board and management diversity
- What percentage of the board is independent?
- How diverse is the board (gender, race, nationality, expertise…)?
- Is the diversity of the board aligned to that of the client base?
Current theme: Capital allocation
- What is the company doing to improve its cost of capital?
- How much is being invested in R&D and for future organic growth?
- What is the governance and decision making process for capital allocation?
Case study: European consumer durables and apparel company
Strategy alignment with the long term
We believe long-term thinking leads to sustainable business models. As long-term investors, we expect companies and boards to articulate their vision for the company, and to take steps, including through their compensation arrangements, to align themselves with long-term outcomes.
Our medium-term theme for this priority is executive remuneration. Sample engagement questions are provided below.
Current theme: Executive remuneration
- How are executives incentivised?
- Is the information publicly disclosed, and is it easy to understand?
- Is executive remuneration in line with the company’s long-term strategy?
Case study: Global financial institution
Human capital management
Effective management of human capital, including workplace standards, education and training, and diversity and gender equality, is critical to maintaining an engaged and productive workforce. Companies should ensure that they have appropriate policies and procedures in place to stay productive and competitive, as well as to protect the rights of their employees.
The medium-term theme of our engagement on human capital management is diversity. Sample questions we ask companies with which we engage are provided below.
Current theme: Diversity in the workplace
- What percentage of senior management is female?
- What programmes are in place to increase diversity?
- What are you doing to attract the right talent?
Case study: European airline
We believe that a sustainable company should act in the interests of all of its stakeholders – not just a narrow group of providers of capital – in order to create value. Companies should strive to promote positive relationships with employees, supply chains and customers, as well as to understand their broader impacts on the communities in which they operate.
In the medium term, our focus for the stakeholder engagement priority is on cyber security. Below are some of the questions we ask in our engagement on this theme.
Current theme: Cyber security
- How often is cyber security discussed at the board level?
- Where does the biggest cyber security risk lie in the organisation?
- How have previous breaches been dealt with and escalated?
Case study: Global technology company
We believe that the risks and opportunities related to climate change can have a material impact on profitability, balance sheet, and can directly impact the ability of companies to create long-term shareholder value. By embedding climate risk considerations into corporate strategy, companies can manage risk and exploit opportunities to create sustainable value for shareholders in the long term.
In the medium term, we are focusing our climate engagement on strengthening corporate disclosure related to climate change. Sample engagement questions are provided below.
Current theme: Climate disclosure
- What is the company’s climate change strategy and governance approach?
- Does the company have a science-based target in place?
- Is the reporting on climate risk TCFD-aligned?*
*TCFD: Task Force on Climate-related Financial Disclosures.
Case study: Japanese steelmaker
Investing on the basis of sustainability/ESG criteria involves qualitative and subjective analysis. There is no guarantee that the determinations made by the adviser will align with the beliefs or values of a particular investor. Companies identified by an ESG policy may not operate as expected, and adhering to an ESG policy may result in missed opportunities.