SLGI Asset Management Inc. integrates environmental, social and governance factors (ESG) into our process for evaluating, selecting and monitoring sub-advisors. In this report excerpt, MFS Investment Management (one of our sub-advisors) writes about its ESG activities in the second quarter of 2021.
Industry initiatives
Climate action a key commitment
On 7 July 2021, MFS became a signatory to the Net Zero Asset Managers Initiative (NZAM). Launched in December 2020, NZAM is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius above preindustrial levels. MFS is proud to make this commitment, and we believe the initiative’s goals are well aligned with our active ownership approach and the expectations we have for companies held in our portfolios.
ESG inherent across all assets, including real estate
During the second quarter, we also made the decision to become a member of Global Real Estate Sustainability Benchmark (GRESB). GRESB is an industry-driven organization committed to assessing the ESG performance of real assets globally, including real estate portfolios and infrastructure. GRESB’s annual survey is completed by approximately 240 REITs and many more private organizations. Most questions are focused on environmental issues, but some social topics are covered as well. These surveys are evaluated and scored by GRESB and feedback is provided to each organization that responds. As members, we plan to use and evaluate the reports and data that GRESB provides.
Addressing the need for more disclosures
Additionally, Sun Life (MFS’ parent company) provided comment on the U.S. Securities and Exchange Commission’s consultation on climate change disclosures, and MFS contributed to a separate comment letter developed by the Investment Company Institute (ICI). MFS also contributed to and signed onto a letter organized by Ceres that was sent to the four major auditing firms, encouraging better disclosure around auditing and evaluation of climate risks. Additionally, MFS wrote a letter to the Financial Accounting Standards Board (FASB) regarding the insufficiency of corporate tax disclosures, requesting the organization to improve its reporting standards on corporate tax issues.
Collaborating towards progress
During the quarter, we remained active participants in many industry groups. For example, we continue to actively contribute to multiple Climate Action 100+ engagements. Our team also made contributions to the work of the Workforce Disclosure Initiative (WDI), both by providing feedback to enhance the WDI’s company survey and participating as a panellist on a webinar hosted by the organization.
ESG research
Over the past three months, our investment team has developed several pieces of high-quality ESG/sustainability research. Our sector teams held dedicated meetings to discuss climate risks and opportunities in aviation, pricing and access in pharma/biotech and social issues in financials, among other topics. These meetings were informed by proprietary research in these areas and engagement with many company management teams on these topics. Our investment team has also spent considerable time evaluating various other ESG risks and opportunities, such as the environmental impacts associated with automobile tires.
Active ownership case study
Active ownership is a powerful tool in the ESG toolbox, and proxy voting is one of the relevant levers. This was apparent during this past quarter in relation to a proxy contest at an oil supermajor. The company has faced growing criticism, most recently from an activist hedge fund, which has raised concerns around performance, strategy and board composition. More generally, the critique centers around poor capital allocation and a lack of board preparedness for an energy transition. The hedge fund launched a proxy contest, nominating four replacements to the 12-member board of directors at the oil company whom they believe bring much needed expertise and would aid the board’s ability to enact the energy transition needed. This is the highest-profile case to date of activist investors putting forward a dissident slate due to a company’s lack of progress on energy transitioning.
Members of our investment and proxy teams met to debate the oil company’s climate transition risks and recent actions taken by the executive team to improve the company’s management of those risks. We had long viewed the company’s actions as insufficient for managing these risks, but we needed to understand which of several votes and potential changes would produce the best outcome for the company and MFS’ clients. After much consideration, the team agreed that voting in favour of the hedge fund’s four nominees was necessary to increase the board’s overall level of awareness of and experience in areas of renewable technologies. In this historic vote, three of the four dissident nominees were elected to the oil company’s board of directors.
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