Part 2: Stewardship and ESG: An Australian perspective
Kimon Kouryialas and Megan Scott, COO for Martin Currie Australia, discuss how ESG research has evolved at Martin Currie Australia over the past 19 years.
ESG ratings have been part of our process since 2009…. We've always been really strong in the G space… Over the last 18 months we have brought in things like the SDGs, and that's now an important part of our E and S process
Kimon: I’m Kimon Kouryialas, I hope this message finds you and your family safe and well.
Today I'm speaking with Megan Scott, COO of Martin Currie Australia, and a 19-year venture within the firm. Megan and I are going to have a discussion about how Stewardship and ESG research has evolved during her time at Martin Currie Australia. Hi Megan.
Megan: Hi Kimon
Kimon: Megan, in your view why do you think stewardship and ESG is so important to Martin Currie, and what's your earliest recollection of ESG research and the way it has evolved within Martin Currie?
Megan: So when we talk about stewardship and ESG, we see financial returns and ESG factors are intertwined over the long term. We believe that ESG factors create risk and opportunity and it is important to consider these as part of our investment process
And also, by how we integrate our ESG analysis, it provides us valuable insight into the quality of boards and management, in the companies were invest in, and we believe that's a critical part to our investment process
And if I think about what I earlier recollection of ESG and how we've been incorporating ESG into our process, I mean ESG ratings have been part of our process since 2009, and it started really as a fairly basic format we would take the ratings from MSCI ESG factors and we would feed those into a Quality rating for our investment process. And that would feed into our stock valuation.
Kimon: And so, it's clear it's been an involvement of ESG for a long time. What do you believe are some of the enhancements that you've made overtime to improve the team’s ESG risk research in the way that it's been implemented for our clients?
Megan: Yeah sure, so I think what we've managed to do is take what I talked about those basic MSCI ESG factors and then we've incorporated to make our own ratings now. And so that includes measuring things like carbon emissions, we've managed to incorporate different frameworks in our process, and I think most importantly we are able to identify specific areas of focus when we look at ESG. And that ultimately assists us in how we engage with companies
So specifically, when we look at that we incorporate key material and relevant ESG factors and we put that directly into our Valuation of Quality assessments that we undertake when researching companies.
And I think it's important to say that these are fully integrated in our research, in our internal research system too. I think you think about how this has evolved when we look at E, S and G, I think we've always been really strong in the G space.
I think how we've been evolving this process is focusing on the E & S, and I think particularly some of the work we have manage to do over the last 18 months, we have really developed that, and we've managed to bring in things like the Sustainable Development Goals (SDGs) and that's part now of our E and S process, and it's a much more comprehensive, I think, process that what it has been. If we think back to 2009, fairly basic, and now this is much more integrated and continues to evolve obviously. But you know we've done a lot of work over the past few years integrating and involving that.
Kimon: And when you talk about the work that's been done on the E and the S, and also historically the G, what are some of the biggest challenges that you have faced in terms of implementing these changes?
Megan: I mean I think the biggest challenge probably is that there is so much data and information around there, and so you can sort of be a bit overwhelming because what we really want to focus on is the material parts, you know what's really the material issues for the company. And I think that as we've been able to evolve and develop, that we've been able to provide a focus and it means that the investors are able to look at what the ESG issues are at the forefront.
I also think team culture plays a big part, you know, as I sort of mentioned back in 2009 it was a bit of an afterthought in terms even though it was embedded in our process, and you know we've really done a lot of work in trying to build the passion and the desire from the investors. And I think through using people like Will and David and myself, who have been able to help that and bring that out to the forefront, and it means that the investors now consider that really integral part of how we value companies.
Kimon: As part of this series, I've also spoken to David Sheasby who's head of ESG and Stewardship at Martin Currie in Edinburgh, I'm really keen to hear about your involvement with David and your interaction, and in particular I'm really interested to hear about you know your thoughts around you know thinking globally when it comes to ESG and how does that sort of come into practice?
Megan: Yes, I mean David and myself worked very closely. David provides a really good knowledge around Stewardship and a much wider concept I guess than what we can do here in Australia. And you know, I think the bit that we can use David is that he can link into wider organisations for example like the PRI.
And you know, and I think by using someone like David and that we can have a global sense of ESG, because ESG really is global, and that you know we can use those wider developments in global issues to really sort of hone in what we think is important in the Australian market.
Kimon: And then how do you think about measuring the investment floors progress in terms of Sustainability, and how do you think you can provide sort of detailed reporting to clients that actually show whether or not you're delivering on that view?
Megan: Yes, so I think when we talk about Sustainability and how we look at companies and how they look at this space and therefore how the investors look at it, it's definitely a journey. And you know I think we really try to get to see companies how they can improve on Sustainability. So, we're focused obviously on realising material and important issues in Sustainability, and that there are pathways to improve that Sustainability.
So what we see our role is, is that we have engagements with companies, you know we would challenge companies to change where we think they need to, and then we realise that we've got a duty to our investors to push for that change, but we do recognise that this is done through engagements with companies on board and management level, and so often in our client reporting we really focus on what we've done in that engagements, our follow up meetings that we have on the board and management level as well.
Kimon: And when you talk about engagement with companies, do you believe that you know you're asking companies a lot in terms of the companies that you invest in, and what sort of feedback or push back do you get from companies?
Megan: I mean it really depends on who were talking to, like we have a lot of engagements you know over the years, it's easily in the thousands that we do, and I think that we've got to sort of focus a framework and what we need to talk about.
We have what we call a governance framework and a management framework. Often we actually find the companies they quite enjoy the challenge because they want to know how they can improve, you know they obviously have their role, particularly if we think about the boards role, they have such a vital role in terms of Sustainability themselves for the company, and so that you know it's often a really good progressive conversation.
We also find that sometimes it takes a while, we have to continue to follow up you know have these engagements and sort of sometimes push for that change where we think it's reasonable and fit.
Kimon: And in this sort of COVID-19 world, what do you believe has changed in terms of you know the focus on Sustainability?
Megan: Yeah, I mean I think if we think about from a business point of view, I mean I think COVID has provided such a shift in the mindset of how we do things, for example, how were communicating today.
And you know I think I'm not alone in that we've got to start thinking about travel, and you know if we think about our own business, I find it difficult to believe that we return completely to the level of using aeroplanes as we used to.
Kimon: And finally, Megan, what do you personally do or want to do more of to improve your own Sustainability?
Megan: Yeah so, I mean I think in this space I'm probably guided most by my two daughters. I mean I think the next generation has got a lot to teach us about Sustainability and where that focus is and how we ingrain that into our everyday life.
And so things that have been sort of happening in my household is the focus on waste, on plastic use, has been a big push for my 2 girls, and so I really sort of look to them to see what the next what the next generation is looking at in terms of Sustainability.
Kimon: Well thank you very much for that Megan, it's quite interesting to see how the evolution of the ESG over time is really now starting to spend more time focusing on the E & S, rather than the G. Thank you very much for your time.
Megan: Great, thank you
Kimon: And to all our viewers out there I hope you enjoyed that stay tuned for Will Baylis, Portfolio Manager at Martin Currie for our new Sustainable Equity fund, where Will and I will be discussing the concept of Sustainability, and more importantly the views of net benefit to society. Thank you very much.
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