As an active manager, we strongly believe that taking account of environmental, social and governance (ESG) considerations can help us make better long-term investment decisions for our clients. Furthermore, we believe in leveraging the power of investors to trigger positive change. This involves exercising our voting rights systematically in the best interests of our clients and engaging directly with the companies we invest in when we have ESG concerns.
In our latest active ownership report, we present key figures and commentary on our proxy voting and ESG engagement activities. We look forward to continuing our active ownership activities in 2020, both bilaterally and through collaboration with industry partners.
Engagement with corporate issuers
Through our engagement programme, we seek to focus on corporate issuers with material ESG failings in order to encourage them to align their policies, practices and disclosure with established industry best practice.
Corporate engagement examples: ESG in action
German power company on environmental and social issues
We started engaging with this company in early 2019 primarily to press the company to sell off its coal and lignite assets. During the year, the company rotated its assets towards renewables and the company committed to achieve carbon neutrality by 2040.
After multiple bilateral and collaborative meetings (through CA100+), the company made considerable progress on a number of engagement objectives as it:
- started to work with the Science Based Target Initiative (SBTI) in order to assess the disparity between the company’s own carbon reduction targets and the goals of the Paris Agreement
- committed to improve the alignment of their reporting with Taskforce on Climate-related Financial Disclosures (TCFD) recommendations
- begun considering linking executive pay to climate targets
- initiated a global review on climate-related lobbying practices to ensure they are consistent with the company’s own climate strategy
Canadian material company on corporate governance issues
In 2019, we engaged with this company to prevent a majority shareholder from acquiring it at what was, in our view, an unfairly inexpensive price. We discussed the issue with other long-term shareholders to better understand their views and exchange concerns. We directly engaged with the company’s board together with the external deal consultant and the case featured in a Canadian newspaper.
In June 2019, we visited the company’s latest acquisition on-site to see for ourselves whether this warranted the corresponding share price decline. We met the company CEO and VP Finance & Strategy to discuss the rationale and activities there. This only strengthened our conviction that the share price fall was unwarranted.
As a result, upon the announcement of a takeover, we emphasised to the board that we were not in favour of the move, especially at the existing offer price. When minority shareholders were asked to vote on the potential takeover bid, our investment team voted against the deal. The bid did not go through due to shareholder opposition and, as such, we achieved our goal and the engagement was closed.
Dialogue with sovereign issuers
For our Emerging Markets sovereign debt strategies, ESG factors are integrated within country risk models. A targeted dialogue with sovereign issuers is part of our active ownership strategy.
In 2019, we partnered with EMpower, a well-respected and innovative global philanthropic organisation focused on youth in emerging economies, in order to enhance their analysis and understanding of long-term sustainability issues.
Brazil: ESG in action
In 2019 our macroeconomic strategist designed a due diligence trip to Brazil to better understand the unique political and economic challenges, as well as gain insight into specific social development issues. Our research showed issues in the quality of spending in education and its diversity and inclusion system. Conversations with the Ministry of Economy show the current administration’s desire to improve Brazil’s business environment and to secure long-term growth for the country. This is an example of the positive feedback loop between improving ESG issues and the overall creditworthiness of a sovereign issuer.
Our ongoing analysis and dialogue surrounding these issues continues away from country due-diligence trips and at times we have an opportunity to act in a collaborative manner with other investors who share our concerns. For example, in 2019 Pictet Asset Management signed an Investor Statement on Deforestation and Forest Fires in the Amazon.
Opinion by Arabella Turner, ESG specialist at Pictet Asset Management.
Proxy voting: Pictet AM’s 2020 voting summary can be assessed here and the past records here.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.
Important notes
This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.
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