ESG Investing: Engaging with Companies
ESG Investing – We think that businesses that actively handle environmental, social, and governance challenges will be successful in the long run. They can reduce financial performance and increase risk when improperly managed. Direct communication with businesses on these matters is crucial since it can improve financial results and possibly lower investment risk. Let’s look at two brief instances involving diversity and human rights.
Not only for their own employees, but also for those of their suppliers, businesses should establish strong human rights policies. They run the danger of supply disruption and reputational harm if they don’t. A 2020 World Benchmarking Alliance assessment gave the car industry very poor grades on this topic.
Daimler, now Mercedes-Benz, a German automaker, was contacted because the business performed admirably in comparison to its rivals. We discovered that the corporation identified and audited high risk suppliers, such as cobalt miners, among all their sustainable processes. The business needed an industry-recognized certification for more ethical mining as a result. Understanding these procedures aided us in future interactions with auto companies.
We think that when a firm fosters diversity in skills, viewpoints, and backgrounds, it will succeed more. According to a 2020 McKinsey study, businesses with the highest levels of ethnic and cultural diversity outperform those in the lowest quartile in terms of profitability by 36%. Since diversity begins at the top, we established a policy requiring at least 20% female representation on all boards worldwide and at least one director who represents a different racial or ethnic group on US boards. Otherwise, we do not support the chair of the nomination committee or the nominating committee member with the longest tenure.
We believe that in order to promote sustainable business practises, investors should engage with companies and exercise strategic proxy voting.