South Korea’s president, Moon Jae-in, said that the country would actively respond to the climate emergency and will achieve net-zero emissions by 2050.
Australia – proposal to allow companies to host virtual-only meetings
The Australian Treasury announced a (very short) public consultation on proposed changes to the Australian Corporations Act which include allowing for companies to host virtual-only shareholder meetings under any circumstances, and removing any requirement for a physical shareholder meeting.
The recent proxy advisor ISS’s 2020 annual global policy survey found a significant majority (77%) of investor respondents support hybrid shareholder meetings allowing for both physical and virtual (online) attendance, while just 11% of investor respondents support virtual-only meetings, except under exceptional circumstances when physical or hybrid meetings (i.e., that provide the option of either physical or virtual participation) are not possible2.
While Martin Currie, as institutional investors, do not necessarily find access to companies restricted, we believe that virtual-only meetings can serve to limit shareholders’ abilities to engage with corporate officials, raise questions, and hinder the transparent expression of views.
PRI – launches investor guide on human rights
The United Nations-supported Principles for Responsible Investment (PRI) released a new report, ‘Why And How Investors Should Act on Human Rights’, which sets out clear expectations for investors based on global human rights standards and provides recommendations on the integration of human rights into investment practices.
The report highlights the growing demands of stakeholders – employees, beneficiaries, clients, governments and wider society – for investors to consider various human rights issues in their decision making. Since the development of the UN Guiding Principles on Business and Human Rights (UNGPs), and the UNGPs’ endorsement by the UN Human Rights Council in 2011, it has become increasingly clear that the consideration of human rights in investment activities is of fundamental importance to the advancement of Environmental, Social and Governance (ESG) investing. The PRI’s report outlines a three-step process for investors to demonstrate their consideration of human rights:
- Publishing a policy commitment: a policy commitment to respect human rights that is integrated into governance frameworks, management systems, investment beliefs, policies and strategy to inform investment decisions, stewardship of investees and policy dialogues.
- Having due diligence processes in place: actual and potential negative human rights outcomes reflected in investors’ decision-making process, including in portfolio construction, security selection and asset allocation, and/or in selecting, appointing and monitoring external managers/funds and other services providers.
- Enabling or providing access to remedy: where investors are responsible for providing access to remedy for people affected by their investment decisions when the investor is either contributing to, or causing, the negative outcomes.
Modern slavery is of increasing importance to our clients...
Investment Association guide to sustainable finance regulatory requirements
With extensive regulatory changes under way in Europe the asset management UK trade body, the Investment Association produced an excellent overview of the upcoming regulatory requirements regarding sustainable finance. In particular, this focuses on the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy, with the intention to help asset managers ascertain the extent to which their products are captured, what is expected of them, and by when. This can be found here.
Callan Survey on ESG adoption by institutional investors in the US
Each year, the investment consultancy Callan surveys institutional investors to better understand their views on environmental, social, and governance principles, and the trends driving ESG adoption. This year’s survey shows that 42% of respondents are already incorporating ESG into their investment decisions (almost double the level of 2013) and for those not yet doing so, a third indicate an intention to do so. This is almost triple the proportion of last year. This indicates the continued momentum behind the integration of ESG3.
Apple – product environmental report for iPhone 12
Apple introduced the new iPhone 12 series at a virtual event in October. Interestingly, at the same event, Apple also published a Product Environmental Report for the iPhone 12. The new iPhone will be produced using recycled rare earth materials, is more energy efficient and to address the environmental concerns surrounding its products and to reduce E-waste. Apple has also made its (recycled material) packaging smaller by dropping the earbuds and chargers from the box. These measures are a part of a wider commitment to have a net-zero climate impact across its entire business by 2040. The environmental report can be found here.
The EU Sustainable Finance Disclosure Regulation (SFDR) which is soon to come into effect, sets transparency and disclosure requirements on asset managers and products. The European regulation has set this out in a number of articles that look at the approach to incorporating ESG risk (Article 6), the extent to which portfolios have Environmental or Social characteristics (Article 8) or have a sustainable objective (Article 9). Given our ESG credentials, we have been working closely with our parent company Franklin Templeton to ensure that the funds sold into Europe clearly reflect our capabilities and are aligned with the regulatory requirements.
Modern slavery is of increasing importance to our clients, and as recent news in the UK regarding the clothing retailer BooHoo shows, it can have a material impact on the share prices of businesses. The recent launch of the PRI investor guide on human rights is another strand of this same theme. As such, we have been developing our framework looking at the analysis and reporting of modern slavery risk and we will be leveraging our ESG Working Group to develop this work further.
In addition, in Australia where modern slavery reporting requirements are most advanced, we have been engaging with companies to understand how they assess modern slavery risk, the due diligence approach to supplier onboarding, the ongoing audit process, mitigation actions and overall governance of the process.
We met the Wesfarmers sustainability team to discuss its approach to sustainability and specific aspects including modern slavery. The main points from our meeting were:
- Wesfarmers employs over 550 people in Bangladesh, India and China to monitor and conduct audits on factory workers with suppliers and modern slavery. 37,000 suppliers are audited every two years and Wesfarmers will work with suppliers who have underaged labour and ensure the employee is returned to school.
- Single use plastic is under a lot of scrutiny, especially in the Australian-based retail chain KMART and Wesfarmers is seeking to have it eliminated over time. Wesfarmers is also working on a solution to recycle unwanted poly cotton garments.
- Indigenous reconciliation. Wesfarmers currently has over 2% of employees indigenous (out of over 102,000 employees) and aims to lift this above 3%.
- Underpayment of staff. This issue was identified internally and over A$15million plus interest was repaid to staff. The complexity of awards system is no excuse and chairman has referred to this as a failing of Wesfarmers in the last financial year.
- Wesfarmers to map SDGs and use this as a universal language for the group to identify both targets and achievements.
European regulatory changes remain front and centre in terms of workflow. However, we have just completed work on our latest stewardship article looking at Stakeholder Primacy in the post-COVID world. We will also be preparing for the next Stewardship Matters report which is due out in January. In Australia, we are entering the AGM season so there will be a significant focus on engagement and the voting ahead of these.
1Source: International Energy Agency, World Energy Outlook (WEO): https://www.iea.org/reports/world-energy-outlook-2020
2Source: ISS, 2020 Annual Global Policy Survey: https://www.issgovernance.com/wp-content/uploads/publications/2020-iss-policy-survey-results-report-1.pdf
3Source: Callan, https://www.callan.com/2020-esg-survey-blog/
Regulatory information and risk warnings
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 information contained in this document has been compiled with considerable care to ensure its accuracy. But no representation or warranty, express or implied, is made to its accuracy or completeness.
The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
Past performance is not a guide to future returns.
The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
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 information provided should not be considered a recommendation to purchase a particular strategy / fund or sell any particular security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.