Impact Report 2020
November 2021
Welcome To our 3rd Impact Report
This report aims to provide investors in Affinity’s Sustainable Growth Strategy with an insight to the positive contributions their capital has made towards the UN Sustainable Development Goals (SDGs), using the themes which shape this mandate.
Looking back, 2020 (the period this report covers) was the year in which sustainable investing came of age.
“Against a backdrop of economic uncertainty, volatile markets and a fragile consumer, investors in sustainable products remained steadfast in their conviction. We saw unprecedented asset growth – as did the industry. Sustainable investing proved itself to be not just resilient, but a potential answer for the social inequality and biodiversity crises thrown into relief by the covid-19 pandemic.”
Victoria Leggett, Head of Impact Investing, UBAM
Asset growth and investor choice
Demand to invest in funds which focus on environmental, social and governance (ESG) issues jumped in 2020, driving assets under management up 29% in the fourth quarter to nearly $1.7 trillion, according to Morningstar.
Sustainable fund flows surge past $150 billion
Flows into sustainable fund flows over time, in billions of US dollars
The charge to Net Zero
Digging deeper, asset growth was primarily concentrated in a range of climate-aware funds including clean energy, green bonds and low carbon mandates.
On the topic of bonds – the year also provided discretionary managers with the option to invest more impactfully in the fixed income space. Up until recently, choice was limited to very low yielding, green bond funds or products which simply utilised ESG screening to select the ‘least bad’ investment options. Fortunately this has now changed, as the sector – in keeping with equity-focused peers - has evolved beyond minimum screens, to fully integrating ESG factors in research and portfolio construction.
In doing so, the aim is to help offer solutions and drive progress, through investing in the securities of issuers that they believe have, or will have, a positive impact on the environment and/or society, whilst also offering attractive long-term risk/return profiles. By the end of the year, the strategy owned 3 bond funds providing investors with exposure to emerging market companies, global issuers and businesses leading the charge towards Net Zero.
Biodiversity
Looking ahead, we believe biodiversity will take centre-stage in the coming years, as the industry moves beyond a narrow, carbon-centric approach to the climate and environmental crises the world faces. Managers are increasingly seeking to determine the positive or negative biodiversity impact investments are making, and ultimately to establish whether biodiversity restoration presents a challenge or an opportunity to their business models.
‘Our economies, livelihoods and wellbeing all depend on our most precious asset: nature. We are part of nature, not separate from it.’
These are the opening lines of The Dasgupta Review on The Economics of Biodiversity, published by HM Treasury in February 2021. It argues nature needs to enter economic and finance decision-making in the same way buildings, machines, roads and skills do. This requires changing our measures of economic success. Introducing natural capital into accounting systems is seen as a critical step to promoting sustainable growth and development.
Building on the implications of this report has come the high profile launch of the Task Force for Nature Related Financial Disclosures (TNFD). This will consult with a variety of stakeholders to create uniform disclosures to help corporates, investors, lenders and insurance underwriters manage nature-related risks.
Our collective failure so far to understand that nature underpins our global economic system will increasingly lead to financial losses. More than half of the world’s economic output – $44tn of economic value generation – is moderately or highly dependent on nature, according to estimates by the World Economic Forum. Nature is the bedrock for economic growth but nature cannot send invoices for services rendered. The high dependency of the global economy on nature means biodiversity loss represents significant risk to corporate and financial stability. You should not be surprised to learn, on reading next year’s Impact Report, some of your capital may have found its way towards addressing this critical theme.
Launch of Sustainable Balanced
Also in the pipeline for 2021 is the launch of our Balanced offering, providing a solution for investors who wish to invest sustainably, but require a little less volatility, smaller drawdowns and a shorter investment time horizon than our longer running Growth offering.
No less impactful and still contributing to the work of Durrell, this multi-asset mandate will target inflation plus 2%, and is now possible thanks to the emergence of a broader investment universe addressing sustainability. The expanded opportunity set includes equity long/ short strategies, multi-asset approaches and the bond funds previously mentioned. Consequently next year’s report will focus on holdings across both strategies.
Fund categorisation –and the evolution of impact data
With the EU Sustainable Finance Disclosure Regulation (SFDR) coming into force in March 2021, there continues to be a debate around fund classification and reporting metrics. A large majority of funds held in this mandate are classified as the most impactful Article 9, with just 3 of the 15 classified as Article 8 (integrating sustainability risks and promoting environmental or social characteristics) and none are Article 6.
We still remain some way from the utopia of a standardised taxonomy to measure impact, but the direction of travel is increasingly clear. For example, in terms of climate metrics, fund managers are going beyond reporting measures of carbon avoided (metric tonnes of CO2 equivalent), to measuring and projecting the indicative warming potential of their portfolios (measured in degrees Celsius).
At the company level - driven by the management principle ‘you cannot manage what you do not measure’ - standardised sustainability and impact measurements are being introduced to create transparency, authenticity and trust in this space.
To achieve the objective of directing capital towards companies truly making a difference, these new principles will require published accounts to express both the profits and the impact a company makes through its products, employment and operations.
Recapping the purpose of the mandate
For us sustainability means making economic prosperity long lasting, more socially inclusive and less dependent on exploitation of finite resources and the natural environment. Today, companies that provide solutions to the challenges faced are well placed to grow strongly. We believe, by investing in these firms, our clients can make a positive contribution towards a more sustainable world, align wealth with their values and generate attractive capital gains.
The purpose of this mandate is to provide growth with impact. The strategy targets inflation plus 3%, over a long term investment horizon of at least ten years. This report deliberately focuses on impact rather than investment performance, but the latter has been pleasingly strong, and is detailed in our regular quarterly communications.
8 themes
We allocate capital, using funds, across 8 themes. Namely;
These sustainability themes relate to long-term trends and the funds we use to access them are focused on the competitive advantages of firms and economies in the future, rather than value-diminishing short-term reactions. Each theme maps to one or more of the 17 UN SDGs.
Durrell Wildlife Conservation Trust
By investing in this strategy you also support Durrell Wildlife Conservation Trust (DWCT). A fixed percentage of the discretionary fees you pay are donated to this Jersey-registered charity. They go to support the charity’s work around the globe to save species from extinction. Learn more about the important work they do by visiting www.durrell.org
Rewild Carbon in numbers
Rewild Carbon is Durrell’s wild, colourful and impactful carbon offsetting programme, which reduces carbon in the atmosphere by rewilding threatened ecosystems.
Less than 6% of the Atlantic Forest remains
Our first Rewild Carbon project is in the Atlantic Forest in Brazil
1,000 Endangered Black Lion Tamarins will be protected
We aim to restore 5,000 hectares of new Atlantic Forest
7 million trees will be planted and nurtured in the next 5 years
100 nest boxes will be built to provide safe sleeping sites for Tamarins in forest corridors
250 local Families will be employed
2 million tonnes of atmospheric co2 will be stored over the tree’s lifetime
Habitat will be restored for more than 100 mammal species, 439 bird species and 30 amphibian species
800 locals will be trained in seedling production and forest restoration
co2
Affinity’s social responsibility
Our commitment to sustainability extends beyond this mandate. As a firm, our Ethical Charter (accessible on our website) sets the tone for our business. We aim to be good citizens, active in our community and supporting global efforts towards a more sustainable world. We continue to be participants in the UN Global Compact and our latest Communication on Progress may be found on the UN website https://bit.ly/3piYHPU More recently we have become Signatories to the UN Principles for Responsible Investing (UN PRI).
Some of the other recent activities we are proud of include:
Offsetting our carbon
Following an independent assessment of our carbon footprint we contributed to Durrell’s Rewild Carbon initiative, purchasing credits to offset 23.5 tonnes of CO2e, representing the emissions for our financial year end 30 September 2020. We know each Rewild Carbon credit is based on a science-driven transparent process, with particular attention to minimising administration costs; maintaining an in-house registry to ensure carbon is not sold twice; and a commitment to monitoring and regular reporting. More importantly, the Durrell scheme does not simply focus on carbon – each credit also contributes to reviving ecosystems, recovering species and rebuilding livelihoods. In other words it is making carbon offsetting wilder, healthier and more colourful.
Our Diversity & Inclusion Charter
This can be found on our website at https://affinitypw.com/about
The Diversity Network, Jersey
Our ongoing support with The Diversity Network with a particular focus on lifting the lid on menopause in the workplace.
Renewing our partnership with ecoJersey
Which aims to raise awareness of environmental issues and encourage islanders to take actions.
Being part of Eco Active
A government environmental management scheme taking action to lower the environmental impact of our business.
The impact of your investments
The data we have available is for 2020 and reflects the holdings over that year. During this time the portfolio held c.1,000 stocks and bonds, with the total assets managed across the underlying funds being in excess of £10bn (this figure was £3bn in 2019). Once again you will be relieved to know we are not reporting on every underlying position, although we have access to this information. Instead, we are selecting a small number of examples bringing the 8 themes to life; serving to illustrate the diversity of the mandate in terms of the businesses, sectors and geographies involved. We also address how the individual fund houses have been engaging with company management teams.
In summary
We hope you enjoy reading this and find it useful. However, even after three editions, we appreciate this is not a finished product. In particular, we acknowledge the need to add reliable impact metrics. In order to deliver these, a project is already underway to ensure they are included in our next annual Impact Report.
There is so much more we would like to share and our process is iterative both by design and out of necessity as the industry continues to develop. Your input is invaluable and we hope the dialogue will continue for many years to come.
£10bn+ 2020
£3bn
2019
Aegon Global Sustainable Equity
This fund provides exposure to a portfolio of mid-cap growth stocks. The investment team use a bottomup approach to categorise companies as sustainability leaders, improvers or laggards. Their investment conviction is ultimately determined by combining these insights with an established global equity stock-picking process. Aegon believe the relationship between sustainability and alpha (outperformance) is intuitive. Increasingly, this belief is backed by evidence – companies that do good, tend to do well.
SolarEdge Technologies (Israel)
SolarEdge Technologies Inc. has been a beneficiary of the growing demand for solar panels on roofs. For example, in California it has become a requirement from 2020 that every new home is built with one. By making each solar panel ‘intelligent’, the company’s technology optimises the power generation of a rooftop solar system. In the residential space, SolarEdge provides its own smart inverters, cloud-based monitoring systems, solar-based water heating and now its own battery storage systems. Globally, SolarEdge has installed 10.6 GW of systems.
Keyence Corporation (Japan)
Robotics and automation are structural growth trends that are disruptive to existing ways of working, but also extremely beneficial from a productivity, health and safety and resource efficiency perspective. Keyence products are standard (not custom made) and are designed to be easily integrated into production lines. They include automation sensors, vision systems, barcode readers, laser markers, measuring instruments and digital microscopes.
Engagement
As a business, Aegon believe it is their responsibility to encourage the companies they invest in to maximise investment returns for their clients through good governance practices. This includes respect for society and the environment. As a significant shareholder in many companies, they are well placed to actively promote best practices in environmental, social and governance matters.
During this reporting period, the Global Sustainable Equity team engaged directly with 25 companies and voted at 40 company meetings. At a quarter of these meetings they levied at least one vote against management.
The target themes for engagement were focused on Diversity, Climate Change and Governance.
BlueOrchard EM SDG Impact Bond
BlueOrchard is a leading global impact investment manager. The firm is dedicated to fostering inclusive and climate-smart growth, while providing investors around the world with premium investment solutions, including credit, private equity and sustainable infrastructure.
This fund supports corporations in frontier and emerging markets that finance or are engaged directly in impact areas and thus contribute to achieving the UN SDGs.
Bond - Ecobank Transnational USD 9.50% 18/04/2024 (Africa)
Ecobank is a banking group in Africa, present in 35 subSaharan countries supporting regional co-operation and economic integration across the continent. Its activities include microfinancing and capital provision to small and medium sized businesses. The bank’s Xpress Account and Xpress Loan services are provided to c.12m customers and are largely targeted at previously unbanked or underserved consumers. 10% of the loan book is dedicated to support women-owned and women-focused SMEs.
Bond – StoneCo Ltd USD 3.95% 16/06/2028 (Brazil)
StoneCo is a leading provider of financial technology solutions that empower merchants to conduct commerce seamlessly across multiple channels and help them grow their businesses. The company is primarily focused on their 8.8m small-and-medium sized businesses in Brazil, which have historically been underserved and overcharged.
Engagement
It is estimated annual investments of $5 to $7 trillion across sectors and industries will be necessary to achieve the SDGs globally. In developing countries however, there is a $2.5 trillion annual shortfall in funding. BlueOrchard has sought to address this topic by initiating the BlueOrchard Impact Summit, a platform where global leaders, key decision makers from the private and the public sphere, and academics come together and find ways to unlock the resources required to meet the SDGs.
As bond investors, BlueOrchard‘s engagement team take the opportunity to address any gaps identified during their impact & ESG analysis, which are undertaken for each issue under consideration. Topics addressed depend on the respective issuer, but are often related to transparency of ESG documentation and data.
BMO Responsible Global Emerging Markets
This fund invests in high quality, large cap companies, with strong or improving sustainability characteristics, which we believe is the right approach for long-term investing in emerging markets. Integrated into the investment process is BMO’s Responsible Investment Advisory Council – in place to maintain the integrity of the standards by which the Responsible range of funds are run, providing advice on ethical and sustainability criteria.
Vitasoy (Hong Kong)
Vitasoy has grown from a company fighting malnutrition in Hong Kong to being a global brand representing a collection of plant-based food products, especially soy milk. Secure access to a reliable and low-cost agricultural supply base is critical, a factor which is increasingly challenged by the impact of climate change on water availability and soil quality. Vitasoy has implemented responsible procurement policies and completed supply chain climate risk assessments to help combat this, as well as enhancing sustainable packaging practices. With the creation of a dedicated role of Sustainability Chief, Vitasoy’s future sustainability targets are increasingly aligned.
Clicks Group (South Africa)
Clicks is a healthcare group based in South Africa, a country with one of the highest inequality levels in the world (according to the Gini Index). As the largest drug and healthcare retail chain in the country, Clicks has expanded their range of lower priced products and grown their network across South Africa. This leaves the business well placed to enable lower income families’ access to affordable healthcare and reduce the spread of communicable diseases.
Engagement
BMO engaged with 87% of their Responsible Global Emerging Markets portfolio through the year, totalling 31 companies. This included voting at 64 of 65 company meetings attended (the one exception occurring where the company applied share blocking).
Corporate governance issues accounted for 32% of engagement, with board composition the most common target. BMO engaged Colgate-Palmolive India on this topic, and the company appointed two new independent directors to the board to improve balance as a result of this.
13.4% of votes were against management, includingin a Vitasoy meeting - against the re-election of three non-executive directors, due to a lack of independency.
Despite the pandemic, BMO maintained a high level of engagement, with their 87% figure down just 3% from 2019. For BMO, a successful outcome from engagement is measured through ‘milestones’ in a three-star rating system; 3 stars indicating the most significant impact.
Federated Hermes Impact Opportunities
Impact Opportunities is a high conviction, concentrated global equity strategy with a bold objective. It aims to generate long-term outperformance by investing in companies succeeding in their core purpose; to generate value by creating positive and sustainable change that addresses the underserved needs of society and the environment. All holdings fit into one or more of nine impact themes which are aligned with the SDGs.
Siemens Gamesa (Spain)
Siemens Gamesa is the largest offshore wind turbine manufacturer in the world, playing a pivotal role in providing clean, efficient power that will shape the world’s global energy transition.
As the wind-energy industry continues to accelerate, Siemens Gamesa has continuously developed new technologies to enhance sustainability. In May 2020, they launched a new offshore Direct Drive wind turbine: the largest and most efficient in the world, with a 14-megawatt capacity. This provides an increase of more than 25% in annual energy production compared to its predecessor. Just one turbine can power 18,000 average European households each year.
Hannon Armstrong (USA)
Hannon Armstrong is the first US public company dedicated solely to investments in climate change solutions. Through every investment, the company aims to reduce carbon emissions and other tangible environmental benefits, such as reducing water usage. The three core business lines are ‘behind-the-metre’ technology, grid-connected assets and sustainable infrastructure.
In the first 9 months in 2020, the company made $1.1 billion-worth of climate-positive investments, above their yearly target of $1 billion and a $300 million increase from the same time last year. In July 2020,
Hannon Armstrong partnered with ENGIE, the largest independent power producer and energy efficiency services provider in the world, to invest around $540m into a portfolio of wind and solar projects in the US.
Engagement
Since its inception, (Federated) Hermes has been at the forefront of responsible investing and active ownership. Their stewardship and engagement arm, EOS, established a pioneering model for working constructively with corporate boards and management teams in the long-term interests of investors, coining the term for this practice – engagement.
In 2020, the EOS team engaged 1,245 companies. Governance matters accounted for 42% of issues and objectives engaged. Within this, executive remuneration and board diversity were the top issues.
Ahead of the UN COP26 meeting in Glasgow in November 2021, climate change remained the fund’s number one priority theme, demonstrated by 79% of environmental issues engaged being climate change related.
Human capital management during the pandemic and gender and ethnic diversity were also high on the list of engagement issues through 2020.
To provide further insight to Hermes’ approach and results, they have engaged with a major beverage company on its water stewardship strategy. In 2020, the conversation was expanded to include biodiversity and regenerative agriculture. The company was encouraged to develop its reporting to give greater transparency of the inputs, such as fertiliser use, and the outcomes of its actions, such as soil quality, to enable Hermes to better understand progress and impact.
Goldman Sachs Emerging Markets Equity ESG Portfolio
Goldman Sachs Asset Management (GSAM) designed this fund for investors looking to access dynamic emerging markets and invest in companies that show a commitment to Environmental, Social and Governance (ESG) leadership. GSAM believe that ESG and impact investing factors can be material to investment performance and work towards ever deeper ESG integration across their range of funds. In 2015, they acquired the assets of Imprint Capital (“Imprint”), one of the largest dedicated ESG and impact investing advisors in the industry. This expertise has been used to develop the philosophy and processes embedded in this fund.
ENN Energy Holdings Ltd (China)
ENN Energy (ENN) distributes natural gas and is one of the largest clean energy distributors in China, helping customers to reduce greenhouse gas (GHG) emissions through supplying cleaner and more efficient energy solutions. On first take, ENN might be considered by some as an inappropriate investment within a Sustainable mandate. In our view, the materiality of the impact case presented below should dispel these concerns.
70% of China’s economy is currently powered by coal and GSAM see ENN’s activities as crucial in the country’s ‘coal-to-gas’ conversion and contributing to China’s pathway to carbon neutrality by 2060. While natural gas is a fossil fuel, it is significantly cleaner than coal. Moreover, it will not be possible for China to directly transfer to full green power overnight and the role of natural gas as a cleaner transition fuel will be crucial in the coming years. Gas represents 9% of the energy mix today and China is targeting 15% by 2030.
As a natural gas focused company, ENN may not screen positively with third-party data providers, but it will clearly have a significant positive impact in improving the overall carbon intensity of China’s economy. The company has set up a dedicated team to manage overall ESG risk, and having aligned with the TCFD framework, now discloses climate related governance, risks,
strategies and goals. The company itself is targeting net zero carbon emissions by 2050 and has set targets to reduce Scope 1 and 2 GHG emissions intensity. These will, in part, be achieved by the installation of 4.7 GW of photovoltaic capacity. Furthermore, ENN has extensive carbon offset targets and plans to research and complete projects in carbon capture by 2030.
Engagement
GSAM’s Global Stewardship Team focuses on proactive, outcomes-based engagement, in an attempt to promote best practices. These engagements are designed to complement the engagements conducted by the investment teams. Engagement activity by the Global Stewardship Team includes letters sent to company management teams, as well as in-person meetings or those held virtually. In calendar year 2020, 443 engagements were conducted with 384 companies.
In October 2020, GSAM launched a climate collaboration engagement framework to encourage disclosure of material emissions data. The Global Stewardship Team worked with the Fundamental Equity, Quantitative Investment Strategies and Fixed Income investment teams across the business to identify companies held in portfolios who do not disclose emissions data considered material under the Sustainability Accounting Standards Board (SASB) framework. GSAM will engage with these companies to promote disclosure of material climate data.
Further progress in their engagements / voting around Board Composition and diversity was also reported. Votes with management: 1,132 votes (89.42%), votes against management: 116 votes (9.16%). Female representation on boards remains a voting priority.
Ninety One Global Environment
The experienced team at Ninety One manage the Global Environment Fund to provide long-term income and capital growth, by investing globally, primarily in companies contributing to or benefiting from positive environmental change. This will include companies operating in services, infrastructure, technologies and resources related to environmental sustainability. All the companies in the Global Environment strategy are exposed to at least one of three themes – renewable energy; electrification; resource efficiency.
Alongside delivering investment returns, it purposely seeks to contribute to decarbonisation and actively measures and reports its ‘carbon avoided’ impact.
Brambles (Australia)
Brambles operates the world’s largest pool of reusable pallets, crates, and containers, with their high level of recycling removing complexities in the supply chain. ‘Pallet and container pooling’ represents 100% of revenues, and through reduced timber use and transport efficiency, the company saves approximately 2 million tons of carbon annually.
As well as carbon avoided, their circular economy business model saves water (4.6 billion litres), trees (1.6 million) and waste (1.4 megatonnes). Brambles are on track to disclose all 15 Scope 3 categories in their next sustainability report. 2025 goals include an increase in upcycled plastic, using 100% renewable electricity, and zero product materials being sent to landfills in subcontracted locations
Itron (USA)
Itron offers smart networks, software, services, meters and sensors to help utilities and other customers better manage energy and water resources. Sustainable decarbonisation will require a move to electrified global energy, and this needs significant investment in a smart electricity grid. Itron has a leading market position with over 75% of power in the US touching Itron technology.
Itron delivers critical infrastructure services to over 800 customers in more than 100 countries, with 46,600 tCO2e emissions avoided (2019). Itron are yet to produce Scope 3 emissions data, a subject Ninety One have engaged them on.
Engagement
Ninety One’s thorough engagement programme has once again led them to engage with 100% of companies in their Global Environment Fund portfolio. They voted at 29 shareholder meetings across 16 markets and on 381 resolutions. At 14 of these shareholder meetings, Ninety One cast a dissenting vote (against, abstain, or withhold) on one or more resolutions. 38% of votes cast were director related and this included voting against the re-election of a director to the Kingspan Group Board.
Furthermore, Ninety One are an advocate for the Carbon Disclosure Project (CDP), which involved collaborative engagement with 36 companies on disclosure of environmental impact. They led 3 such engagements with Nextera Energy, Xinyi Solar & Longi Green Energy – the latter two have subsequently reported their emissions data to the CDP and Nextera are set to follow suit.
Pictet Global Environmental Opportunities
The Global Environmental Opportunities (GEO) fund’s investment approach uses a unique scientific framework; Planetary Boundaries. It identifies nine key environmental dimensions (water, climate change, biodiversity, land use, nitrogen & phosphorous cycle, ocean acidification, ozone depletion, aerosol loading and chemical pollution) and specifies the respective thresholds that humanity should not cross if it wishes to avoid irreversible environmental damage.
Pictet operationalise the planetary boundary framework and apply it to an environmental assessment of companies. They analyse whether companies’ core activities, products and services respect these boundaries or not, over their life-cycle. The team only invest in companies within the safe operating space that make an ‘active’ contribution to solving environmental challenges. The approach occasionally yields negative emissions. For example, a company manufacturing wind turbines would generate negative carbon dioxide emissions if those wind turbines replace more conventional oil, coal or gas powered energy generation and help reduce emissions in the future.
Ansys (USA)
Ansys is an engineering simulation market leader, licensing software for design analysis and optimisation. The company’s software allows engineers and designers to incorporate the compounding effects of multiple physics into a virtual prototype of their design and simulate its operation under real-world conditions. Ansys serves customers in high tech, automotive and aerospace sectors and has been held in the portfolio since 2014, reflecting its excellent recession-proof revenue model and positive environmental impact in terms of resource efficiency.
Tetra Tech (USA)
Tetra Tech provides high-end environmental consulting and engineering services, supporting commercial and government clients. Their main sustainability focus areas are innovative water, environment, resource management and sustainable infrastructure and energy solutions. The company helps its customers meet environmental regulatory compliance programs, helps cities and municipalities design resilient and sustainable infrastructure and also assists the US Federal government with various environmental programs Stateside and abroad.
Engagement
The GEO fund has 10 active engagements across its five main categories: environment, supply chain, employees and society, clients, and investors. By way of example, as part of the supply chain strand, which investigates human rights, labour rights and resource sustainability, Pictet have engaged with a German ingredients company. The food ingredients industry has a big impact on biodiversity and there are trade-offs between synthetic and natural ingredients. The team have engaged on the sustainability of the supply chain.
As an actively managed fund, Pictet aim to vote on 100 per cent of equity holdings. The overarching purpose of voting is to protect and promote the rights and longterm interests of their clients as shareholders. The team engage with and challenge companies’ management to ensure they operate well-run businesses and adhere to their strategy and deliver shareholder value. All voting aims to support a strong culture of corporate governance, effective management of environmental and social issues and comprehensive reporting according to credible standards.
During this reporting period, Pictet voted on 648 items at shareholder meetings; 598 votes were with management, 50 were against.
PIMCO Climate Bond
This strategy from PIMCO is based on a global and multi-sector credit portfolio that aims to help foster the transition to a net zero carbon economy, while seeking risk-adjusted returns comparable to an investment grade portfolio. Importantly, the team invest beyond green bonds, widening the opportunity to drive projects primarily aligned to climate solutions and industry leaders of environmental action. In addition to green bonds the strategy will invest in so called “unlabelled green bonds” and climate leaders. Unlabelled green bonds are issued by companies or municipalities that are exposed to low carbon products (e.g. a renewable energy company). Climate leaders are companies like Danone which are not fundamentally green companies but are leading the way in mitigating carbon emissions across their value chain.
Bond – ReNew Power USD 5.875% 05/03/2027 (India)
ReNew Power is a renewable energy company and a leader in solar energy projects for commercial and industrial customers. The business was established in 2011 and since commencing operations with a 25.2 MW wind project in Jasdan, Gujarat, the company has grown exponentially and has a current renewable asset base of over 10 GW (including projects under development and in the pipeline). In October 2019, ReNew Power became the 1st renewable energy company in India (and 10th globally) to cross 5 GW of installed capacity.
Bond - Bank of America Corporation USD 1.486% 19/05/2024 (US)
Bank of America (BofA) is a leader in Green bond issuance among US banks, with an active role in underwriting Sustainable finance, recently expanding financing of low-carbon activities. It set a Green finance target to reach USD125bn of cumulative low-carbon investments between 2017-2025, which it met in 2019, and an additional USD1trn between 2020-2030. BofA’s disclosure is consistent with the green bond market’s best practices, including clear eligibility criteria for the use of proceeds and comprehensive impact reporting aligned with SDG indicators. In addition, BofA has set a 2050 net zero financing goal that encompasses its financing activities. At a Group level, the company has made significant strides in terms of climate-related sector policies and climate risk disclosure, notably via the release of its first TCFD report in 2020.
Engagement
PIMCO aims to facilitate genuine positive impact through their ESG engagement activities, with key objectives focusing on accelerating corporate sustainability commitments, impact bond issuance and investor disclosures, among other topics. All engagements are undertaken at the issuer level, rather than on a holdings or issue level. When identifying target issuers, their approach tends to prioritise those with a strong fundamental credit profile, but gaps in ESG risk management. They tend to take a more nuanced approach rather than simply engaging with large companies and instead consider how - and iftheir collaborative engagement will facilitate positive change and aid the issuer in setting or meeting their sustainability objectives.
Polar Capital Emerging Market Stars
Our Sustainable Growth strategy is not a portfolio of angelic companies and it will inherently provide exposure to companies that are moving from less good to better. An analysis of the EM Stars fund reveals positive sustainability contributions, relative to its benchmark, in categories such as environmental good, board independence and carbon efficiency sitting alongside less good scores in avoiding water scarcity and gender equality. We have consistently stated, investing sustainably is complicated and sometimes the materiality of a large company moving in the right direction is very impactful. This fund incorporates inputs inspired by the UN SDGs and adjusts the cost of capital calculations in financial analysis for specific and material ESG issues. Additionally, the Sustainable Accounting Standards Board (SASB) guidelines form the backbone for their analysis. The fund reports impact via Impact-Cubed methodology, which calculates how much of the active risk exposure can be mapped to UN SDGs using ESG factor analysis.
Samsung SDI (South Korea)
Samsung SDI specialises in developing Lithium ion battery technology, critical for electric vehicles (EVs). The EV batteries market is seen as an attractive growth area due to increasing EV penetration. With 80% of sales from batteries, Samsung SDI performs well under the fund’s proprietary Sustainability Delta Analysis, with good performance in most areas. The company continues to introduce and expand various programs to respond to issues such as child labour and health & safety.
the highest quality grades ever found, available at lowest costs of production. Polar see Ivanhoe as a key beneficiary of green technologies – copper and nickel are critical inputs in the development of Li-ion batteries for EVs, energy storage systems and renewable power solutions. Renewable energy sources are 5x more copper intensive. The company’s positive direction in sustainability terms place it well in the fund’s Sustainability Delta Analysis, recycling 50% of their waste materials, using large amounts of hydropower for energy and investing a percentage of revenues into local communities.
Engagement
The team undertake an extensive engagement programme, and in 2020 had over 400 interactions with companies. Engagement is broken down into three types of engagement that form their stewardship: ongoing business monitoring and elevating company awareness; deeper business analysis and challenge and feedback; and seeking to affect real change due to specific behaviour or events. Last year, 378 votes were with management (89%), with 46 against (11%). Although 2020, was a slightly lighter year, given the pandemic, Polar Capital still took part in notable collaborative engagements with Climate Action 100+ and hope activity will normalise in 2022.
Ivanhoe Mines (Canada/Southern Africa)
Ivanhoe Mines is a Canadian-listed mining company, with three principal assets in Southern Africa: KamoaKakula (copper) and Kipushi (zinc-copper) in the DRC, and Platreef (platinum group metals, nickel, copper) in South Africa. The DRC copper asset has some of
RobecoSAM Global Gender Equality Impact Opportunities
RobecoSAM Global Gender Equality Impact Equities invests in companies that are known to demonstrate significant gender diversity and equality, as well as sustainability. A high degree of gender equality means that a company consciously recognises and encourages gender equality in the acquisition, cultivation and commitment to female talent at all levels of the company’s structure.
Schneider Electric (France)
This business is a global leader in electrical distribution, automation and energy management products. The company operates through four divisions: Low Voltage, Medium Voltage, Secure Power and Industrial Automation. It is well positioned to benefit from increasing investments in digital transformation, smart grid developments, the integration of decentralised power generation through renewables, and the focus on energy efficiency.
Schneider Electric substantially outperforms its peers with regard to diversity on the supervisory board, with female representation reaching 42%. It is building a gender-balanced leadership pipeline. Currently, 21% of managerial positions are held by women. The company also aims to improve its hiring ratio, which now averages 40% for female hires. Moreover, >92% of employees are working in a country with a commitment and process in place to achieve gender pay equity, and 75% of employees are covered by Schneider’s Family Leave Policy. The 2020 targets for these policies are 95% and 100%, respectively.
offers test preparation, certifications, conferences, seminars, memberships, and subscriptions to business professionals in the areas of accounting, anti-money laundering, banking, and mortgage industries.
Lisa Wardell has been CEO of Adtalem since 2016 and a member of the board of directors since 2008. She is the only African American female chairperson and CEO in the S&P 400 Index. Under her leadership, gender and ethnic diversity has increased at the Adtalem board to 67%, and within Adtalem’s senior leadership to 75%. At the same time, the stock price for Adtalem has almost tripled during her tenure.
Engagement
Robeco engage specifically with portfolio companies on gender equality topics to improve their gender equality performance. The objectives of the engagement dialogue also focus on increasing the disclosures related to gender diversity throughout the workforce, equal remuneration practices, disclosure of well-being programs and how gender diversity is approached at the board level. The investment team and the engagement team in Rotterdam are actively involved in the underlying investee company dialogues. The dialogues last on average 1-3 years.
In 2020, Robeco updated its voting policy and introduced stricter guidelines on gender diversity on boards. 27% of the votes against board elections were due to diversity concerns.
Adtalem Global Education Inc (US)
Adtalem is a post-secondary education services company providing undergraduate (associate and bachelor) and graduate degree programs (master and doctoral level) in medicine and healthcare, with a strong focus on online nursing courses. In addition, the company
Schroder Global Cities Real Estate
The investment rationale behind this fund is based on the premise Global Cities are places where people want to live, work and play. Their key characteristics are: strong infrastructure; diverse economies; skilled labour force; and quality of life and culture. Investing in real estate within these cities gives exposure to a diverse range of sectors and access to economies that are expected to outperform national averages.
The team maintains a comprehensive database and each company held has a Global Cities score: the higher the score the more likely a company is to be held in the portfolio. As their investment process has evolved the team have put more and more value on the sustainability of assets in the real estate world, and it is this evolution of their approach which has been the catalyst for us to allocate to this fund.
Alexandria Real Estate Equities (US)
This is a real estate investment trust (REIT) that invests in laboratories and office buildings leased to tenants in the life science and technology industries. Alexandria has a longstanding focus on and continues to evolve innovative approaches to developing sustainable campus environments with healthy workplaces for leading life science, technology, and agricultural technology entities.
Alexandria’s mission statement is “to create and grow clusters that ignite and accelerate the world’s leading innovators in their noble pursuit to advance human health by curing disease and improving nutrition”. One of their exciting recent projects includes their Partnership with Verily to deliver OneFifteen Living, the residential housing component of the opioid treatment and recovery campus in Dayton, Ohio
Kilroy Realty (US)
A US office REIT with a portfolio of properties which is recognised as being one of the leading players in sustainability in this sub sector and the broader real estate industry. The company has the majority of its assets in leading US Global Cities; Los Angeles, San Francisco, San Diego and Seattle.
Kilroy believe a company cannot be sustainable if it focuses on environmental concerns without looking at the impacts it has on its employees, tenants, and communities. Their efforts significantly reduce the company’s environmental footprint and in 2020 it achieved carbon neutral operations, becoming the first North American REIT to accomplish this meaningful commitment. Kilroy is the premier developer and operator of LEED* properties on the West Coast. (*Leadership in Energy and Environmental Design, the most widely used green building rating system in the US).
Engagement
The Global Cities team typically interact with management from portfolio companies 1-4 times per annum and actively vote in AGMs and EGMs. They do not target a theme in particular, rather they engage with topics raised on a case-by-case basis. This said, consistent areas of focus for portfolio holdings have been on renewable power, carbon emissions (both operationally and in development) and GRESB – Global Real Estate Sustainability Benchmark - participation.
Schroder Global Energy Transition
This investment team aim to provide capital growth by investing in equities of companies worldwide that are associated with and driving the transition towards lower-carbon sources of energy. The fund invests across the entire sustainable energy value chain, classifying investments into seven key energy transition activity groups: Renewable energy equipment; Renewable energy generation; Transmission and distribution; Batteries and energy storage; Hydrogen; Electrical equipment and energy; and Clean mobility. The fund will ensure at least 75% of its total assets under management are invested in companies that generate at least 50% of their revenue from activities contributing to this energy transition.
Volkswagen (Germany)
Volkswagen is the global auto-maker which the team believe is undergoing a radical transformation – in terms of its product offering, strategy and culture. As part of its new strategy, the company is paving the way for the biggest change in its history to become a globally leading provider of sustainable mobility. The company has recently outlined an ambition to have 50% of its global sales in electric transportation by 2030 and is bringing over thirty new electric vehicle models to the market. Moreover, they have included a clear medium-term roadmap with distinct milestones to achieve this target, something that was important to Schroder as it will allow them to hold management to account. Moreover, the company has also laid out a very ambitious strategy to expand its footprint in batteries and charging infrastructure. With respect to batteries, the company announced they were planning to vertically integrate into the battery supply chain and were building a unified battery platform, which it ultimately hopes to deploy on 80% of VW’s fleet by 2030, rather than building different batteries to fit different car models.
The company will also look to use the batteries they are involved with as a future source of flexible power generation – allowing Volkswagen vehicles to interact with the electricity grid. With respect to EV charging, the company has a plan to expand its charging network in every major region globally and has formed partnerships with a number of companies to ensure technology development and infrastructure rollout.
Vestas (Denmark)
Vestas designs, manufactures, installs and services wind turbines across the globe. With turbines installed in 81 countries and over 100GW under service, they are the largest onshore wind turbine manufacturer globally with a well-diversified footprint.
Wind power is becoming increasingly competitive with conventional generation technologies and Vestas is well placed to benefit from the growth in wind capacity globally. Its underappreciated services business provides long-term recurring earnings growth and support.
Market consolidation and price stabilisation should lead to improved product returns going forward. Vestas’ platform approach and technology leadership allows them to leverage economies of scale and drive best-in class returns.
Engagement
Actively engaging with management is a core part of the investment process and the Schroder team closely engage with investee companies, speaking with them once every six months, on average. Their engagement activities are prioritised based on the materiality of their exposure to the individual companies, either by the total size of assets invested on behalf of clients or by the percentage of shares held.
Alongside these regular company engagements, where sustainability is usually discussed but not always the sole reason for contact, the team also undertake dedicated sustainability engagements alongside Schroder’s Sustainable Investment Team.
UBAM Positive Impact Equity
This fund is managed to a simple principle; innovative companies, which generate their revenues from finding solutions to the world’s biggest challenges, are in a unique position to be able to serve their stakeholders well. It is a concentrated portfolio of just under 40 stocks, delivering exposure mostly to European equities, although the mandate is global in nature.
UBAM have distilled the 17 UN SDGs into 6 investment themes; 3 societal – basic needs, health & wellbeing and inclusive & fair economies – and 3 environmental; healthy ecosystems, climate stability and sustainable communities. Holdings in the portfolio must generate revenues from businesses that directly address these themes.
Victoria Leggett is the Head of Impact Investing at UBP and oversees an experienced team of portfolio managers and impact analysts.
Signify NV (Netherlands)
A world leader in lighting, Signify provides energy efficient products such as LEDs which helps to reduce the footprint of lighting around the world. Lighting accounts for 13% of the world’s electricity demand but the shift to LEDs will lower this to 8% by 2030. Operationally, Signify is carbon neutral and uses 100% renewable energy, as well as directing zero waste to landfill. It has reduced safety incidents by half over 5 years. 83% of sales came from sustainable products. Their next targets include doubling Bright Lives revenues (from positive impact areas where light is used for healthcare, food accessibility or safety purposes) to 32%, and doubling the amount of women in leadership to 34%.
Raisio Oyj (Finland)
Raisio Oyj develop and manufacture healthy foods and ingredients with a specialisation on plantbased nutrition. It develops sustainable brands with transparent production chains, addressing resource efficiency by tackling sustainable packaging and supply chain emission reduction. Recycled packaging is 87% of total packaging. Future targets include increasing this to 100%, to have 80% of products to be healthy alternatives in their respective categories, and to be carbon neutral in production.
Engagement
The UBP impact team engaged with 93 companies in 2020. The Impact Engagement Framework, focussing specifically on ESG and impact measurement, had a 97% response rate (marginally down from 100% in 2020 due to the pandemic and more companies being engaged).
Engagement adopts a four strand approach: investigation, guidance, measurement, and development. In 2020, 13% of votes were against management. Governance was frequently challenged, with UBAM voting against the approval of the Remuneration Policy at Partners Group, as remuneration subject to performance is not linked to sustainability metrics. Although the team were only able to vote at 30 of 37 votable meetings, administrative issues preventing 100% coverage have now been resolved.
Vontobel Clean Technology
This fund invests in companies providing clean and innovative technologies or services that benefit from the global secular trend toward sustainable urbanisation and industrialisation. Such companies endeavour to minimise the negative impact of human intervention in global ecosystems. Reducing the negative effects of global climate change and resource scarcity offers considerable growth opportunities for companies active in these areas.
Johnson Controls (Ireland)
Johnson Controls provides building control and automation systems to improve energy efficiency while enhancing comfort, safety, and reliability. The company produce HVAC (heating, ventilation and air conditioning) systems and fire & security equipment for buildings. Their products ensure safety and confidence for customers and users of buildings in an increasingly sustainable manner. The business has helped customers save more than 26.4 million metric tons of CO2e since 2000.
As a company, future sustainability targets include to volunteer 2.5 million hours by 2025. From a 2017 baseline, Johnson are also planning for a 25% reduction in GHG emissions intensity, 10% water reduction at water stressed locations, 25% of manufacturing locations be landfill-free, and a 25% reduction in recordable safety incidents (all by 2025).
Engagement
The managers are active both in terms of their voting at shareholder meetings and in terms of engagement. The latter takes two forms – collaborative engagement carried out by their Global Trend team, in cooperation with ISS-climate and fact-finding engagement undertaken by Hermes EOS.
The team were able to engage all portfolio holdings (66) in 2020. The key engagement subjects were: Climate change and related risks and opportunities; Avoided carbon emissions; Water management/stress; Energy efficiency; Renewable energies; and Waste management.
Wellington Global Impact Bond
This global bond fund invests in the debt of companies, governments, and organisations whose products and services help address some of the world’s major social and environmental challenges.
The team believe that debt markets offer opportunities to invest in securities that can achieve the “double bottom-line” – being financially attractive and delivering positive societal benefit. Not having an “impact” label attached to a bond will not disqualify it from being included in the portfolio. The team employs detailed research to assess whether the bond’s proceeds are in fact linked to operations that seek to solve some of the world’s biggest challenges in a measurable way.
There are 3 major categories Wellington aim to address across their impact framework: Life Essentials (e.g. affordable housing and clean water), Human Empowerment (e.g. education and financial inclusion), and Environment (e.g. alternative energy and resource efficiency). For each of the investments, they measure key performance indicators (KPIs) to ensure that investments are making progress toward the desired impact.
Bond - Howard University USD 2.6570% 01/10/2026 (US)
Howard University provides quality education to predominantly Black students and achieved 84% enrolment of Black students out of 9,689 total students (2019). Howard works to enable social mobility for students and by 2030 is seeking to ensure equal access for men and women to affordable technical, vocational and tertiary education.
Bond - Cassa Depositi e Prestiti EUR 1.101% 11/02/2030 (Italy)
The issuer is a prominent Italian investment bank founded November 20, 1850 in Turin. The capital raised has been deployed to small businesses, schools and city developments in underserved areas enabling economic and social development.
Engagement
At the fund level, Wellington held 199 engagements across their 63 portfolio companies in 2020, with healthcare engagements particularly important as the global pandemic unfolded.
At the firm level, they reported a vote against management on at least one resolution across 28% of all meetings held. In terms of ESG, healthcare accounted for 31% of all engagements, with energy the next highest at 12%.
Disclaimers
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