Presentation Transcript

1. Engagement – are we really seeing a paradigm shift?

   MånsCarlsson-SweenySenior ESG Research Analyst 10 September
2. About AMP Capital and our ESG capabilities AMP Capital $130bn in funds under management Real estate, infrastructure, fixed income, equities and multi-asset portfolios Signatory to the UN PRI (United Nations Principles for Responsible Investments) in 2007 Dedicated ESG professionals across the organisation Equities: Internal ESG team covers approximately 300 stocks in Australia and NZ Dr Ian Woods – Head of ESG Research MånsCarlsson-Sweeny – Senior ESG Research Analyst Karin Halliday – Manager, Corporate Governance Shalini Samuel – ESG Research Associate 2 2 2 2
3. Corporate governance, remuneration and engagement Remuneration structures can tell you a lot about the governance of a company: Who and what a company values. How open the company is with its shareholders. Pay is complex. No one pay structure will work for all companies Operating environments, ability to attract and retain quality employees, ownership structures and capital structures. Understanding pay, and engaging with companies on pay can: Help ensure shareholder funds are used wisely. Facilitate an understanding of the alignment between the interests of management and particularly where conflict of interest may exist. Contribute to better and more informed investment decisions. 3 3 3 3
4. The two strike rule – a paradigm shift? Has led to greater scrutiny of pay and betterdialogue on remuneration. Higher percentage of votes cast in support of remuneration reports (see below) However, issues still remain. This is an ongoing engagement theme. The ‘two strike’ rule has also led to increased dialogue on otherESG issues at board level. 4 4 4 4 Remuneration reports: voting trend (AMP Capital’s votes 2005-2012) Improvement in the structure and disclosure of executive remuneration as well as company specific improvements in governance. However, there still remains significant issues in many Australian companies.
5. Why ESG? Understanding the importance of ‘intangible drivers’ can lead to better informed investment decisions. 5 5 5 5 Analysis shows the majority of the value of the typical Australian company is made up of intangible drivers. ESG factors are complex and often ‘below the radar’, creates mispricing opportunities. Reliance on weak regulation, underpaid labour and underpriced pollution will not be sustainable. Performance on sustainability issues is a good proxy for management quality.
6. The role of engagement on ESG Engaging on the management of ‘intangible drivers’ can lead to better investment outcomes. Companies: Engagements with companies invested in (e.g. to better understand a company’s management of ESG issues and to reduce risk of value destruction) Engagements with other companies (to broaden investible universe) Industry level: Contribution to public agenda to contribute to systemic improvements (e.g. calls for improved disclosure, publication of thematic research) Corporate access: Engagements through letters Engagements through management meetings Engagements through governance meetings with directors and chair persons 6 6 6 6
7. Examples of key engagement areas Current ongoing engagement ‘themes’ Corporate governance E.g. Meetings, letters, governance forums Climate change E.g. the Investor Group on Climate Change, the Carbon Disclosure Project Improved ESG reporting E.g. stakeholder input on sustainability reporting Coal seam gas E.g. CSG forum, CSG management and reporting framework, UN PRI working group Human rights and supply chain risk management 7 7 7 7
8. Why focus on supply chain risk management? 8 8 8 8 Proxy for management quality Brands are key assets Brand values equivalent to significant part of market cap Brands are sensitive and can be difficult to restore Supply chain management is a strategic issue External pressures made retailers change their sourcing strategies: More direct sourcing (no agents) Less reliance on China (rising labour costs) Switch from China to Bangladesh can have a poor risk / reward ratio: Risk of longer lead times Unsustainable minimum wage - social unrest / production disruption Sweatshops and brand risk
9. Engagements in Australia and internationally on supply chain risk management 9 9 9 9 Australia 2011: Field trip to Asia, meetings with key stakeholders Sourcing in Bangladesh identified as key risk Assessment (risk exposure and risk management) -> engagements 2012: Tazreen factory fire in Bangladesh -> Bangladesh Fire and Building Safety Agreement Tangible multi-stakeholder risk framework specific for Bangladesh 2013: Rana Plaza building collapse -> Accord on Fire and Building Safety in Bangladesh Internationally (Responsible Investment Leaders Fund range) Supply chain risk management (Bangladesh) – key engagement focus in mid-2012 Extension of Australian analysis to include international retailers Identification of specific engagement themes with measurable and tangible outcomes Identification of best practice Signatory to the Investor Statement on Bangladesh 200+ institutional investors with > USD3 trillion in AUM Facilitates engagement with international companies
10. Progress to date 10 10 10 10 Australia Better dialogue with companies Increased focus on supply chain issues: Media, consumers, investors and companies. Signatories to the Bangladesh Accord Engagements by investors…but also NGOs, consumers and media Internationally (Responsible Investment Leaders Fund range) Investor Statement on Bangladesh and the Interfaith Center for Corporate Responsibility Shared knowledge among investors Target list identified Are we seeing a paradigm shift? Sometimes it takes a major disaster for change to happen. Investor engagement can be a catalyst for change but other stakeholders are also influential. Investors need to stay one step ahead.
11. Important note While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.