Company engagement is a crucial part of investing responsibly. Having ‘boots-on-the-ground’ and digging far deeper than financial statements and external ESG research reports has been extremely beneficial in truly determining ESG-related risks and opportunities in a company. These field visits have enabled us to expand our understanding of companies we invest in, while also greatly improving our ability to be a positive influence.
However, the world has changed dramatically since the first quarter of last year, with meetings largely held via technology as a result of the ongoing Covid-19 pandemic. Despite difficulties meeting companies in person, this does not mean engagement takes a back seat. Engagement remains an incredibly powerful tool to bring about positive change, and these efforts have not deteriorated due to the pandemic restrictions.
See also: – Rules of engagement: What constitutes best practice?
With less travel, we have actually increased our total company interaction levels, with all of our investee companies and prospects making ample time to interact with us via video calls. For example, below are three such engagement efforts we have undertaken on behalf of our Stars range of ESG-focused equity solutions.
Examples of engagement
We recently held discussions with US Foods – one of the largest food service suppliers in the US – in order to get a general update on how the company is progressing in terms of ESG performance and whether US Foods has made any strides since our last interaction. The conversation was focused on its business strategy, operational footprint, labour management and supply chain management. On the latter, we were particularly interested in how the company tackles the issue of deforestation and what mitigating efforts US Foods has put in place.
In general, the company has become more mature and sophisticated in the way it handles ESG issues, such as beginning to disclose figures on company emissions. It continues to have strong product quality and safety management and is committed to ensuring the health and safety of workers. With regards to supply chains and deforestation specifically, US Foods has shown signs of improvement, committing to transition all its private label products to the use of certified sustainable palm oil. The company recognises the Roundtable on Sustainable Palm Oil standards and is working with its suppliers to ensure those standards are applied downstream. After our engagement efforts, we upgraded its ESG score by one notch to B+.
As part of our engagement efforts with US e-commerce giant Amazon, we raised the issue of its Covid-19 response, after noting the assessment made on the company by the Corporate Human Rights Benchmark last year. Although news flow regarding its actions during the coronavirus pandemic has at times been positive – such as the widespread hiring of new employees – the company has also been criticised by stakeholders/employees, unions, NGOs and investors for how it has managed the pandemic.
We reiterated the expectations we have on all companies during the ongoing pandemic. Amazon was responsive to our concerns and was able to give examples of a range of different actions the company took in order to protect its employees – including, but not limited to, temperature checks, safety gear and paid sick leave.
Finally, there is Finnish retailing conglomerate Kesko, held in our Nordic Stars portfolio. The main ESG risks and opportunities for the company are environmental impacts, such as greenhouse gas emissions and food waste, as well as product quality, labour management and supply chains. We met the company’s CEO and had a more detailed discussion on Kesko’s sustainability framework and ESG performance with the heads of employee relations and corporate responsibility.
The company has a strong supply chain management programme, including elements like transparency, strict requirements, external audits and credible escalation procedures. It manages labour-related risks in a good way, an approach which held up during the Covid-19 crisis. The company has clear targets and tracking systems in place for greenhouse gas emissions and food waste. It is also cooperating with external parties to limit emissions in its supply chain. Kesko received an A rating and we will be focusing our engagement on strengthening data security practices, given its exposure to such risks through increased online sales and digital services.
Eric Pedersen is head of responsible investments at Nordea Asset Management and an ESG Clarity editorial panellist.
