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10 months ago

Blue Chip Issue 82

  • Text
  • Financial
  • Advisors
  • Investments
  • Equity
  • Wealth
  • Offshore
  • Asset
  • Portfolio
  • Investing
  • Global
  • Momentum
Welcome to our Investing Offshore Special Edition of Blue Chip. a quarterly journal for the financial planning industry and the official publication of the Financial Planning Institute of Southern Africa NPC (FPI). Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.

ESG ENGAGEMENT Six key

ESG ENGAGEMENT Six key themes for active ownership in 2022 Andy Howard, global head of sustainable investment, and Kimberley Lewis, Schroders’ head of active ownership, explain key engagement themes they are focused on. Alongside fund managers and sustainable investment analysts here at Schroders, these are the key areas we’re planning to focus on. ESG ENGAGEMENT THEMES TO WATCH Climate change has dominated headlines, particularly in the run-up to COP26. This will continue, but the Schroders sustainable investment team expects 2022 to see a bigger focus on social issues, including human capital management, human rights, diversity and inclusion. We also expect to focus on biodiversity and natural resource constraints, as the environmental agenda broadens beyond a climate focus. 1. Climate Demand for action and transparency over climate change commitments is at an all-time high. At the start of 2021, we wrote to FTSE 350 chairs asking for them to publish transition plans, and we expanded that engagement to Europe and the US. We will continue to ask portfolio companies to establish targets, focusing on the most exposed companies. Schroders has itself committed to transitioning towards net zero and the influence we can apply through engagement will be critical to delivering that goal. 2. Biodiversity and natural resource constraints As the chart below makes clear, human impacts on the environment have been accelerating at an alarming rate. The topics of biodiversity and natural resource constraints will become increasingly segmented. At Schroders, our research team’s attention is already zooming in on issues such as deforestation, sustainable food and agriculture and waste management. As well as initiating our own engagements, we’ll be collaborating to encourage firms to disclose how material natural capital risks may affect operations. 3. Human capital management Human capital management has been thrown into relief by the pandemic, for example in relation to policies on working from home, and health and safety as well as well being within the workforce. Much attention will be paid to the gig economy and nontraditional work patterns that have increased in recent years. While we recognise that changing work patterns can bring many benefits and are likely to continue, companies directly or indirectly reliant on those workers will need to ensure they take responsibility for their treatment. We wrote to companies early in the crisis, and have followed up subsequently, to express our support for those ensuring their workers and other stakeholders are protected as far as possible. With many economies stuttering towards more normal functioning, it’s important that those priorities are retained. 4. Diversity and inclusion Diversity and inclusion will continue to feature prominently in our engagement activity and will be a strong theme of its own for 2022 and beyond. Historically, throughout the industry, diversity engagement focused on gender diversity at board level. We plan to continue to push for an expansion of this topic both vertically and horizontally, ie down through executive teams and management to the wider workforce and across diversity dimensions including race, socioeconomic and LGBT.

ESG ENGAGEMENT 5. Human rights We believe it is important to consider the theme of human rights through the lens of the impact that companies can have on rights holders. This includes workers – such as through the supply chain, communities – such as through the impact of their operations, and consumers – through the products and services they provide. This year marked the 10-year anniversary of the adoption of the UN Guiding Principles on Business & Human Rights (UNGPs). These are a set of guidelines for states and companies to prevent and address human rights abuses committed in business operations. Engagement is necessary to drive and scale up the adoption and implementation of the UNGPs over the next 10 years. Increasingly there are also issues around digital rights, such as misinformation and privacy concerns, which will continue to come into play under the social banner. Access to medicines has also been hugely important during the pandemic. GOVERNANCE, OVERSIGHT AND THE AGM SEASON 6. Governance The sixth theme the active ownership team is focused on in 2022 is governance, which underpins all ESG themes. We expect increased scrutiny of voting records and shareholder resolutions, especially on climate. Other trends include the rise of “Say on Climate” votes on AGM agendas, shareholder proposals on race issues and the growth in sustainability metrics in reporting. To achieve the sustainable outcomes that are in the best interests of society and stakeholders, a constructive dialogue between boards and investors is a powerful tool. Therefore, we will be hosting a series of conversations with nonexecutive directors to understand their thinking on these topics. In the UK, for example, a review of ethnic diversity on boards called the Parker Review challenged FTSE 100 firms to hit a “one by 2021” target first set in 2016 by 2021. The latest update showed 37% of companies surveyed did not have any ethnic minority representation on their boards. In November 2021, Schroders wrote to FTSE 100 chairs on the topic and from 2022 the business will vote against the nominations committee chair of any FTSE 100 company that has not met the requirement. Andy Howard, Global Head of Sustainable Investment, Schroders Kimberley Lewis, Head of Active Ownership, Schroders www.bluechipdigital.co.za 49

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