Environmental, Social and Governance (ESG)
ESG is a framework by which companies can be judged for their ongoing environmental, social and governance performance. There is no universally accepted ESG code, and ESG is not entirely empirical – many of the judgements regarding ESG are subjective, and criteria deemed acceptable for one industry may be wildly inappropriate for another. For example, a mineral extraction company supplying the component manufacturers of smart phones will have many more issues regarding waste, pollution and carbon footprint than a tech company with employees working from home using technology that depends on the mineral extraction company’s product.
Without a national brand to protect against perceived political incorrectness, we do not feel a need to apply a measure to investee companies based purely on data points that do not paint a full picture. Instead, we look for companies where we are comfortable to be on the shareholder list. To be happy investing your money in the shares of a company, we satisfy ourselves that it has acceptable business practices, and some of those practices can be reviewed with ESG in mind.
Our involvement with an investee company is likely to be for a number of years and few companies behave consistently over a long period. It is as true now as it was a century ago that a well-run company should behave ethically, look after its customers, look after its workers, and make a profit. To us sustainability is not a new concept, it is proven best practice, and we spend a lot of time in assuring ourselves that a company’s philosophy and operating model continues to meet the standards we expect of it.
As stewards of our client assets we have for many years taken as active a role as we can. We usually vote against the automatic re-election of auditors, as we have seen too many instances where, through complacency, a long-established auditor fails to spot that something is wrong. We vote against the automatic buy-back of shares, as we feel that such a mechanism works more to the interest of executive management than to the interest of ordinary shareholders or employees. We give candid feedback after company meetings and challenge management where necessary.
We recognise that we are only stewards of our clients’ capital, and that it is the client that must be comfortable with our approach. In circumstances where a greater emphasis in a particular direction is required, such as the active exclusion of business activities or the limiting of investment to companies that are able to prove the very highest level of responsibility, this can be easily incorporated into a client’s portfolio.