- How ESG is integrated into our investment process
- Why corporates are approaching us for guidance on ESG
- Tangible, positive outcomes from our engagement activities
Our track record has also been rewarded with external recognition in the form of our UN PRI rating of A+ across all 3 of their categories - a threshold only achieved by a small number of signatories.
What have been your main takeaways from such a volatile start to the market this year?
Thanks Sophie. Yes, it certainly was a volatile start to the year and while it is too early to completely rule out the risk of a secondary outbreak; China, Taiwan and South Korea are all releasing encouraging data and gradually easing social restrictions. These countries represent approximately two-thirds of the emerging market index so as we enter the quarterly results season, the focus is now shifting towards the shape of the recovery.
As you know, we are long term investors and our strategy has continued to hold up well, benefitting from the acceleration in the pace at which consumer behaviour is changing. Both our own positions and Emerging Markets as a collective are positively exposed to ecommerce, digital payments, online gaming and cloud computing for example; all of which are proving to be beneficiaries from this testing environment. These are topical areas that we look forward to exploring in more detail on a future podcast.
At the corporate level meanwhile, we also have been monitoring behaviours and it is a volatile environment that can often represent a test of sustainability and ESG credentials.
As a team, I’ve heard you talk a lot about sustainability and ESG. Can you give us a quick introduction as to what ESG is and why it is so important?
ESG is the assessment of environmental, social and governance aspects as part of our investment analysis on a company. This can take into account a number of factors such as how we expect businesses to respond to climate change, how they manage their workforce and supply chains or even whether senior management is incentivised to deliver short term results at the cost of future business prosperity.
We don’t regard ESG as a separate process; it is an integrated part of our everyday approach to assessing the material risk and opportunities of businesses and therefore is fundamental to any holistic assessment of long-term value creation potential.
We do hear other investment managers talking about ESG. What makes Martin Currie’s Emerging Market offering different on this front?
There are other managers who, quite understandably, incorporate ESG as part of their approach but we are very different on 3 fronts; integration, engagement and heritage.
When it comes to integration, this branch of analysis is carried out directly by the portfolio managers - rather than outsourced to a separate team for example - as we are best placed to identify the factors that are most material to the investment outcomes. This also ensures that these considerations are incorporated right throughout the process up to and including portfolio decision making.
Engagement is the second area I want to talk about and this is where we have been actively and systematically working with companies to improve their governance and sustainability characteristics. Engagement can take many forms ranging from voting activity and direct conversations to even introducing companies to each other in order to encourage the widespread adoption of best practice.
We have a long list of significant positive outcomes from our engagement activities. These include:
- the adoption of health and safety procedures at a Chinese utility;
- the adherence to a responsible lending strategy at an Indonesian bank
- the separation of CEO and Chairman roles at a Chinese auto parts manufacturer;
- the formation of an internal ESG committee at a South Korean manufacturer; and;
- an increase in the number of independent directors at a Filipino conglomerate
To us engagement isn’t a finite process, it’s about a constructive ongoing dialogue, and we recognise that it requires patience and persistence. As part of our systematic approach to engagement, we identify a key engagement topic for every single one of our holdings. We then set an objective outlining what we are attempting to achieve and track our progress against that objective. If we have success, we identify a new topic and repeat the process. This leads to real tangible ESG improvements at our portfolio holdings and it is this active approach is what makes us different.
You also mentioned heritage as a differentiating factor. Why is that important?
Yes, our heritage is also extremely important. ESG has been embedded in our approach since the formation of our strategy. The value of our experience shouldn’t be underestimated and gives us an advantage in understanding how ESG impacts business returns and also, through the relationships we have established with companies, gives us an edge in achieving the successful engagement outcomes I have just described.
Our track record has also been rewarded with external recognition in the form of our UN PRI rating of A+ across all 3 of their categories - a threshold only achieved by a small number of signatories – and we have achieved this in each of the last three years.
And our reputation has now reached the stage where we find corporates are approaching us for guidance on ESG matters. Recent examples include one of the world’s largest chipmakers seeking our advice on how to improve their ESG processes for water usage and social value creation, and a reputed global internet technology business looking for our input into the design of their management remuneration structure. This goes to prove these conversations are two way and our extensive experience as a team and as a business enables us to add real value for them as well as our own clients.
That’s very clear. Given the importance of ESG in your process, why don’t you brand the fund in such a manner?
With our industry leading capability, our strategy would certainly be worthy of the brand. And indeed, having a non-exclusionary approach that encourages companies towards positive change means our product is used by ESG and impact teams across the world. However, our goal is to seek out the best long term sustainable growth opportunities in Emerging Markets. ESG is a large part of that but is not an end in itself – it’s part of how we invest. Again, I’d re-emphasise that ESG is an important part of a holistic assessment of business potential.
Finally, can you talk us through how you can maintain leadership in this area?
Much like the businesses we invest in, our approach continues to evolve. For example, one of our recent projects has been to map the products and services of our portfolio holdings to the UN’s 17 Sustainable Development Goals and the most relevant of the 169 associated targets. This work enables us to continue to engage with corporates at an even deeper level while also giving us a clearer view of our own exposures at a broader portfolio level.
Given the range of compelling evidence that ESG factors influence returns over the long term, the key for us is to maintain that integration into our process, to continue to search for new and better ways to engage with companies and to harness our collective experience to ultimately benefit our clients.
Regulatory information and risk warnings
Past performance is not a guide to future returns
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The analysis of Environmental, Social and Governance (ESG) factors form an important part of the investment process and helps inform investment decisions. The strategy does not necessarily target particular sustainability outcomes.
The opinions contained in this recording are those of the named manager. They may not necessarily represent the views of other Martin Currie managers, strategies or funds. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
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