ESGW Investing
We firmly believe the actions of companies and their executives affect the long-term interests and value for shareholders.
As a fiduciary acting on behalf of our clients, we have a responsibility to examine a range of financial and non-financial factors that may impact the operational efficiency and financial performance of companies in which we invest. Since sustainability issues may have sizeable financial impact on companies, we analyse risks and opportunities associated with Environmental, Social, Governance and Workplace (ESGW) factors alongside traditional financial analysis. The guiding principle for incorporating ESGW signals into our investment process focuses on how these factors may enhance or detract from shareholder value over both short-term and long-term horizons.
We have been pro-actively conducting investment research on ESGW since 2007 and have been a leader in incorporating these factors in systematic portfolios ever since.
Vinva’s investment style utilises a systematic approach to the implementation of multiple investment insights. ESGW factors are treated no differently to any other investment insight – if there is a clear economic reason enabling them to forecast returns, and the market is not correctly pricing the factor, then we will add it to our suite of investment signals.
ESGW integration is part of our investment process, in particular, the quantitative analysis phase. We collect proprietary and publicly available data on a number of environmental, social, governance and workplace factors (400+ measures) which can be incorporated into our stock forecasting models and used in predicting future company operating and financial performance.
We also leverage our strong counterparty and vendor relationships to source custom data. This allows us to obtain bespoke data on specific areas of interest.
Environmental Factors
Vinva considers the potential financial and economic implications of environmental issues on companies’ operational efficiency and financial performance. We use proprietary sources and multiple third-party data providers to obtain data on environmental factors and companies’ policies on environmental issues. A range of environmental factors are incorporated into our alpha signals as part of our quality signal family, for example emissions and waste intensity, environmental disclosure, company-level environmental policies, biodiversity, pollution, water scarcity and so on. In addition, we are able to quantify exposures to certain environmental factors, allowing us to assess portfolios exposures to particular environmental themes.
Given the improving data environment around company carbon emissions disclosures and other forms of environmental reporting, we continue to monitor this area and expect to be able to incorporate a wider range of environmental information over time.
Social Factors
Vinva considers social issues as part of its evaluation of how companies are run and their abilities to generate future profits. Economically important social factors are treated consistently with other investment signals to forecast future company earnings and stock returns.
Within the social category, we also collect information on relevant and economically important social factors such as customer satisfaction, human and labour rights, anti-slavery policies, business ethics, bribery, whistleblower protection and so on.
These factors contribute to the overall social factor score for each company in our investible universe, which feeds into our quality signals alongside information from our environmental and governance factors. Companies with poor social policies are likely to be exposed to higher levels of legal risk, or loss of reputation, which negatively impacts future shareholder value creation.
Governance Factors
We believe there is a strong linkage between corporate governance and future returns and value creation for shareholders. We assess stocks based on multiple governance factors including board quality and experience, board independence, independence of the audit and remuneration committees, the quality of risk management systems and the quality of the CEO. Governance data is collected regularly from multiple sources and is transformed into a score for each stock which feeds into our quality signals on a daily basis.
ESG Stewardship
Actively exercising our stewardship responsibilities is an integral part of Vinva’s approach to ESG. Stewardship is also known as active ownership.
Vinva’s stewardship approach includes the following:
- Voting at shareholder meetings
- Engagement with current investee companies on ESG issues
- Participating in class actions
- Advocacy
Our ESG Stewardship Policy sets out our position on corporate governance issues such as proxy voting, engaging with investee companies on governance, environmental and social issues as well as class actions and reporting. The Policy has been approved by both our ESG Stewardship Committee and the Vinva Board of Directors. We take into account guidelines and standards of various groups, including the Australian Stock Exchange, the Australian Council of Superannuation Investors, the UK Corporate Governance Code and the ICGN Global Stewardship Principles. Our Policy will be reviewed regularly to ensure it remains relevant.
Focus
Our stewardship focus is reviewed and approved annually by the ESG Stewardship Committee and updated regularly by the ESG Stewardship team. We focus our stewardship priorities to enhance shareholder value on five key themes:
- Board quality and independence
- Executive remuneration
- Environmental issues such as disclosure and net zero commitments
- Modern slavery and human rights practices
- Workplace practices and employee engagement
Voting rights are part of shareholder value and we therefore aim to vote on all resolutions at annual and extraordinary general meetings held by companies in which we invest. This includes all companies in the S&P/ASX300 index and the MSCI All Countries World Index (ACWI). Our policy is designed to ensure that we vote proxies in the best interest of our clients.
We receive proxy voting research reports for each meeting from Ownership Matters for all Australian meetings, and from CGI Glass Lewis for meetings that are considered more complex or contentious. This research informs our decision-making, alongside any other factors we consider relevant. All voting decisions for Australian meetings are made by Vinva in accordance with our voting policy.
Globally, we have retained Institutional Shareholder Services (ISS) to provide research and execute proxy voting on behalf of our global pooled funds and global mandate clients, in accordance with ISS’s global voting guidelines. We have undertaken due diligence of these guidelines to ensure they are aligned with our own policies.
The implementation of both Australian and international proxy voting is outsourced to ISS. Their proxy voting platform enables Vinva to retain control over its voting policy and final vote decisions, while outsourcing the operational aspects of the process to a trusted partner. ISS receives clients’ proxy ballots, liaises with custodians, executes votes on clients’ behalf, maintains voting records, and provides comprehensive reporting, delivering a complete end-to-end solution.
We use our best efforts to exercise our voting rights; however, in some circumstances, it may be impractical or impossible for us to vote. For example, in international markets where share blocking applies, we typically will not vote due to liquidity constraints. We will also not vote when manual voting via fax is required.
Environmental and Social Issues
Generally, Vinva will apply a common-sense approach to evaluating social and environmental proposals. Our overall principle focuses on how the proposal may enhance or protect shareholder value in either the short term or long term, and a variety of factors go into each analysis.
Say on Climate (SoC) Management Proposals
We expect all companies to provide public disclosures in accordance with the Australian Sustainability Reporting Standards (AASB S2), aligned with the International Sustainability Standards Board (ISSB framework.
Vinva will vote on a case-by-case basis on management proposals that request shareholders to approve the company’s climate transition action plan, taking into account the completeness and rigour of the plan.
Diversity
Vinva will also review the percentage of female directors on a board, with the aim of 30% of female directors on any ASX300 company board. We may take this into account when voting for directors who hold positions on the nomination committee and when engaging with companies.
Shareholder Proposals
Generally, Vinva will vote on all environmental and social shareholder proposals on a case-by-case basis, examining primarily whether implementation of the proposal is likely to enhance or protect shareholder value.
We will consider supporting a shareholder proposal if:
- the request is focused on enhanced disclosure of the company’s governance and/or risk oversight
- the adoption of the request would protect our clients’ interests as minority shareholders; or
- the request would advance progress on our stewardship priorities, including affirming a company’s good practice or prior commitment.
Company Engagement
In addition to voting, Vinva may enter into dialogue with a company if we have concerns in relation to corporate governance, environmental or social issues. Engagement may be in the form of written correspondence, phone calls, or meetings.
The ESG Stewardship Committee decides the focus for engagement on ESG issues, and this is reviewed annually. The ESG Stewardship team determines an annual engagement plan that includes objectives, measurements, and escalation methods, if necessary. This plan is approved annually by the ESG Stewardship Committee.
Engagement with Australian investee companies is primarily conducted directly. Given the size of our Australian assets under management and our extensive experience in managing assets in the Australian market, we have engaged directly with Australian companies since our inception. These engagements provide opportunities for information gathering and relationship building, enabling us to influence corporate behaviour and bring about effective change.
We have appointed Institutional Shareholder Services (ISS) to undertake engagement with global investee companies on behalf of our clients, focusing on five key areas: human rights, labour rights, environment, net zero and corruption. This complements the direct targeted engagement undertaken with local and global investee companies on specific themes, such as director elections, modern slavery and climate reporting. Such an approach provides scalability and a greater collective influence. It also has the advantage of investee companies receiving consistent messaging from a large number of shareholders and having greater influence to effect change.
This type of collaborative engagement enables us to engage with a broader range of companies than would be possible on our own. With 80 other engagement partners and a combined US$3.5 trillion in assets under management, we strongly believe this approach allows us to implement our stewardship objectives on a global scale and will have the most meaningful impact to affect positive change on ESG issues.
Norm-based engagement: ISS engages directly with companies (25 per quarter) that are rated as high risk across the four themes (human rights, labour rights, environment, and corruption) and have been identified by ISS’ ESG Research Team as failing to prevent or address social and environmental controversies in line with national norms such as the UN Sustainable Development Goals, UN Global Compact, OECD Guidelines for Multinational Enterprises and UN Guiding Principles.
Net zero: ISS engages directly with 50 companies over a three-year engagement period and aims to improve companies’ commitments to reach net zero emissions by 2050 by setting ambitious targets and clear metrics.
Our partnership with global engagement platforms like ISS allows us to engage with companies that underperform on key ESG themes such as climate disclosures and modern slavery.
Conflicts of Interest
Vinva maintains a comprehensive stand-alone Conflicts of Interest Policy that addresses a range of conflicts we have identified. In addition, we maintain a register that identifies key conflicts of interest and describes the controls and processes in place to mitigate associated risks.
Where a conflict of interest (or perceived conflict) arises in relation to proxy voting, Vinva’s default position is to abstain from voting.
Advocacy
Vinva is committed to sustainability and responsible investing and we collaborate with organisations that seek to support a number of ESG priorities including the transition to a low-carbon environment.
Class Actions
Reporting
A comprehensive record of voting is provided on a quarterly and/or annual basis to clients. This report includes every resolution voted and records our reasoning for any vote AGAINST management. Aggregate voting statistics will be disclosed annually on our website as required by the Financial Services Council. We also provide reporting on our engagement activities on a regular basis. A more detailed ESG Stewardship report will be provided annually.
If you have any questions regarding this Policy, please contact us as follows:
Vinva Investment Management Limited
Level 27, 259 George Street
Sydney NSW 2000
Tel: +61 2 8298 4700
Fax: +61 2 8298 4777