1. Please provide your ESG-related policies.
Please see Orbis' Statement on Responsible Investing, which explains our approach to ESG integration, and other associated policies (Policy on Engagement, Proxy Voting Policy and Conflicts of Interest Policy) attached.
2. Are sustainable investing and ESG factors integrated into your investment process and portfolio management decisions? If yes, please provide details.
Yes. As long-term investors, we have always believed it is critical to understand the full range of factors that might affect a company’s business and its stock market performance. As part of a bottom-up research process, our analysts consider a range of factors that might affect a company’s intrinsic value, which can include environmental, social and governance (ESG) issues. For example, if a company makes money in a manner that is not sustainable from an environmental or social perspective, we will not gain conviction in the sustainability of its current level of profits. Similarly the consideration of governance issues is a critical part of our assessment of a company’s intrinsic value. There is no ESG issue that would automatically prevent us from investing in a company unless otherwise restricted by a Fund’s investment mandate. All "Phase Three" fundamental research reports that are submitted to a Policy Group Meeting, a forum for rigorous peer review held prior to the firm’s initiating an investment, include a section on relevant ESG matters.
3.a. Are you a signatory to the UNPRI?
3.b. If you are signatory to other coalitions, please list them.
3.c. Indicate any other international standards, industry guidelines, reporting frameworks, or initiatives that guide your responsible investing practices.
In addition to being a signatory to the United Nations-supported Principles for Responsible Investments, Orbis applies the principles of the Financial Reporting Council UK Stewardship Code and accepts the "Principles for Responsible Institutional Investors (Japan's Stewardship Code)" in regard to Orbis' investment activities in Japanese-listed equities. Our responsible investing guidance notes for analysts refer to a number of frameworks that analysts may find helpful in identifying and assessing material ESG factors, including those developed by the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures.
4. Please describe how ESG oversight and integration responsibilities are structured at your firm, including the process for escalation of key ESG issues. How do you obtain ESG information/data (e.g. public information, third party research, reports and statements from the company, direct engagement with the company)?
In common with the principle of individual responsibility and accountability that underlies our investment process, we believe that ESG factors are best considered at the individual analyst level. This is why our analysts are responsible for integrating the analysis of ESG factors into the bottom-up research and investment decisions, putting ESG integration at the heart of our investment process.
In identifying and assessing material ESG issues, our analysts draw on whatever resources they consider appropriate for their research, including those mentioned in this question. For example, they have access to the expertise of our in-house Legal team with respect to governance matters, as well as detailed proxy research from Glass Lewis.
Analysts will consult their team leader if they need to escalate an issue and will typically engage with investee companies (both actual and potential) on such matters. As mentioned in our response to question 2 above all "Phase Three" fundamental research reports that are submitted to a Policy Group Meeting (a forum for rigorous peer review) include a section on relevant ESG factors. This ensures that the investment decision-makers who direct client capital are aware of material ESG considerations and can adjust their recommended position sizes accordingly.
As head of the investment team, William Gray is ultimately accountable for Orbis' investment process, including ESG integration. The leaders of our investment teams are responsible for ensuring that the analysts in their teams effectively integrate ESG factors into their bottom-up research. Compliance is also monitored by a member of the firm’s Investment Counsellor Group who is responsible for our ongoing reporting to clients and as a signatory to PRI.
5. What channels do you use to communicate ESG-related information to clients and/or the public? Do you produce thought leadership (written reports and publications)? If so, is the information available to the public? Please provide links, if applicable.
Our website, www.orbis.com, contains an overview of our approach to responsible investing (including ESG integration) and associated policies, as well as proxy voting records for the previous two quarters (additional proxy voting records are available on request) and statements outlining how the firm applies the principles of the UK Stewardship Code and Japan’s Stewardship Code.
Each year we prepare a document, which we send to clients and prospective clients on request, containing examples of our approach to responsible investing, including when ESG issues influenced our investment decisions, when Orbis engaged with companies and when Orbis voted against management’s recommendation at a shareholder meeting.
As a signatory, we report to PRI annually. We send these reports to clients and prospective clients on request, and public versions are available to other PRI signatories.
In recent years we have focused our communication of ESG-related information on the areas above rather than on producing thought leadership.
6. Do you have periodic reviews of your ESG process/approach to assess its effectiveness? What are the results? What would cause you to disregard ESG issues in your investment/analysis decisions?
Our ESG process/approach is subject to continual evaluation and we expect it to continue to evolve. For example, we periodically update our internal guidance notes so they remain effective in outlining best practice. The last such update, which took place in early 2020, added further guidance in a number of areas, including identifying material ESG factors and in assessing climate-related risks and opportunities. Also in early 2020 we held workshops with each of our regional and global sector analyst teams to discuss these changes, as well as recent lessons learned that may help us to improve the effectiveness of our approach. We have also recently identified an analyst within each team to act as an ESG champion in order to promote best practice within their team, and to identify and address key areas for improvement.
Our analysts' time is a precious resource. They focus their efforts on the most promising investment opportunities and, in doing so, on issues that are potentially material to their assessment of an individual company's intrinsic value. If they encounter an ESG issue that is potentially material, they devote an appropriate amount of time to analysing it. If they determine that the issue is immaterial to their assessment of intrinsic value, they would disregard it.
7. Describe how you identify, assess, and manage climate-related risks.
Like other ESG factors, we integrate those related to climate change into our fundamental research of individual companies and investment decisions. If an analyst views climate change as being potentially material to their assessment of a security's intrinsic value, and thus their investment decision, they will consider it as part of their bottom-up research.
Analysts will consult their regional or global sector team leader if they encounter a significant ESG-related issue. In turn, if the team leader considers it appropriate they will consult with other members of the investment team, and/or William Gray who, as head of the investment team, is ultimately accountable for Orbis’ investment process including implementing the approach outlined in the Statement on Responsible Investing.
When we believe doing so is in the best interests of the Funds we manage for clients, we may also engage with company management to discuss climate-related risks and opportunities. We also vote on shareholder resolutions relating to climate change.
8. Describe the climate-related risks and opportunities you have identified over the short, medium, and long term.
We recognise that climate change is one of the biggest threats facing society today. This creates risks relating both to the physical impacts of climate change and the transition to a lower-carbon economy; the latter also presents opportunities. As mentioned above, like other ESG factors, we integrate those related to climate change into our fundamental research of individual companies and investment decisions. If an analyst views climate change as being potentially material to their assessment of a security's intrinsic value, and thus their investment decision, they will consider it as part of their bottom-up research. Climate-related risks and opportunities may impact the analyst's forecasts for a company's long-term fundamentals and/or the valuation multiple they assume at the end of their investment horizon in recognition of the fact that climate risks extend much further into the future. In this way, such considerations can impact an analyst's assessment of a company's intrinsic value, and thus our investment decisions. The nature and materiality of climate-related risks and opportunities is very company specific and is best illustrated using some examples from 2019.
A number of ESG-related concerns influenced our decision not to proceed beyond Phase One research on a UK-listed mining and commodity trading company, including uncertainty about the sustainability of the material portion of profits that came from thermal coal amid the transition to a lower-carbon economy.
Despite recognising the long-term risks that climate change presents to the airline and automobile industries, in 2019 we established two new positions in such companies because we felt these and other risks were well discounted in the share price due in part to them being better placed than peers to manage the transition to a lower-carbon economy. Ryanair was already the most carbon-friendly airline per passenger kilometre, and we expected moves to force more polluting planes from the European fleet to bolster its competitive position. Similarly, Toyota Motor’s dominance in hybrid technology meant it was well ahead of its peers in already being close to complying with impending European regulations.
9. Describe the resilience of your investment strategy, taking into consideration different climate- related scenarios.
We do not currently perform climate-related scenario analysis at the portfolio level. Instead, we consider climate-related risks and opportunities as part of our bottom-up research of individual companies. If an investment decision-maker does not expect a particular company to be to be resilient given the climate-related risks that it faces, the Orbis Funds would not invest in that company. When we have significant concerns in this regard, we would engage with company management to understand how they intend to develop such resilience. We also vote on shareholder resolutions relating to climate change.
10. Do you track the carbon footprint of portfolio holdings?
If yes, please describe the methodology and metrics used, and whether you have a set target for reducing the portfolio's footprint.
11. What are your firm's emissions? Please demonstrate how/whether you are taking steps to reduce these emissions.
We do not measure our emissions but we are actively reducing our carbon footprint through lower travel and by constraining our business operations footprint.
12. Please provide the composition of your senior leadership team and board of directors, including women and visible minorities. How do you encourage diversity of perspectives and experience?
The Orbis Holdings Limited Board of Directors is made up of 6 Orbis Executives and 3 non-Executives. Full director bios can be found on our website page https://www.orbis.com/sg/institutional/about-us/our-people along with their photos.
We support diversity and inclusion at Orbis for two reasons: (1) we believe that it helps us achieve our core purpose to empower clients by enhancing their savings and wealth, and (2) because it’s the right thing to do. We recognize that diversity within Orbis shapes our culture and will contribute to our success.
The Orbis culture encourages and rewards independent thought, individual accountability and the pursuit of excellence. It is an inclusive culture that celebrates honesty, transparency, curiosity and the courage to challenge the status quo. We seek to provide an environment that brings out the best in people by empowering them to take a long-term perspective and to put our clients first in everything we do.
To support an environment that encourages diversity of perspectives and experience, in 2020 we adopted a firm-wide Diversity and Inclusion Vision that includes key indicators of our progress. The Vision is our roadmap for promoting diversity and inclusion rather than an end point. Recognizing this is a multi-year initiative, we will continue to refine its focus and intent. Our near-term focus areas include progressing education and awareness, reviewing our people processes, improving our recruitment process, formalizing principles and practices on agile working, and building baseline measures of how we look today.
13. What proportion of the time do you vote with or against management on shareholder resolutions, board appointments, and auditor appointments? What proportion of the time do you vote with or against management on ESG issues? How does this break down for climate, diversity, and remuneration issues?
Votes in 2019 for the Orbis Global Equity Fund, a representative account for Orbis' Global Equity Strategy, were approximately:
Shareholder resolutions: 20% against management
Board appointments: 5% against management
Auditor appointments: 10% against management
We do not currently collect data on votes on ESG issues, partly because it is difficult to define the specific proposals that would fall into that category, and also because our views on ESG issues can inform other votes, including those in the categories above (see Wells Fargo example below).
As noted elsewhere, we disclose our proxy voting records each quarter to enable clients to perform their own analysis of our voting activity. On request we also disclose to clients recent examples of when we voted against management's recommendation at a shareholder meeting, including votes informed by our views on ESG issues.
Wells Fargo example
In 2019 we voted against the appointment of six directors to the Board of Directors of Wells Fargo, a US financial services company. These six individuals included the Chair of the Board, as well as members of the Risk Committee and Corporate Responsibility Committee, all of whom we believed bore some responsibility for the fake accounts scandal that damaged the company’s reputation and reduced its intrinsic value. We also voted against the ratification of KPMG as the firm’s independent registered public accounting firm. Investigations into the scandal revealed risk control weakness, and KPMG had been the firm’s auditor since its inception. We felt a fresh look at accounting controls was potentially beneficial for the company and thus in the best interests of its shareholders.
14. What proportion of all independent ESG shareholder resolutions do you support?
In 2019 the Orbis Global Equity Fund voted in favour of 14% of all shareholder resolutions.
As explained in our response to question 13 above, we do not currently collect data on votes on ESG issues specifically.
15. What proportion of remuneration packages do you vote in favour of? In your view, is the current level of executive remuneration too high, too low, or about right? How is this view reflected in your voting record on remuneration?
In 2019 the Orbis Global Equity Fund voted in favour of approximately 95% of remuneration packages.
The structure of a company’s remuneration policy is very important to us because incentive structures drive human behaviour. As such, a company’s remuneration policy is critical to assessing how that company’s intrinsic value is likely to develop over time. If we believe that a company's approach is against the best interests of shareholders, we would vote against it.
The quantum of executive remuneration is one of a number of criteria we consider when evaluating a company’s executive remuneration scheme. Others include whether the scheme is structured to incentivise executives to create long-term value for shareholders; pay-performance sensitivity; the effectiveness of executive remuneration corporate governance; and the transparency and usefulness of disclosures relating to the scheme.
As a result, our voting record on remuneration does not solely reflect our view on the level of remuneration. Furthermore, given the company-specific nature of such matters, we would we not extrapolate the voting record outlined above to imply a view of executive remuneration at all companies, i.e. beyond those owned in the Orbis Funds.
16. Have you ever co-filed an ESG-related shareholder resolution? If so, how many and with what frequency?
We have not co-filed an ESG-related shareholder resolution in at least the last ten years. We may consider doing so if we felt it was in the best interests of the Funds we manage for clients, but we expect such actions to be rare given our preference for private engagement.
17. Have you ever voted against a director for explicitly ESG-related reasons? If so, why? If not, would you consider doing so in the future?
Yes. It is not unusual for us to vote against board appointments, as shown in the response to question 13 above. This may be because we believe a different individual would better serve shareholders or because of concerns about the performance and composition of the board overall (that is, related to governance).
For example, in 2019 we voted against three director appointments at a Chinese online media company due to our disappointment at the company’s financial performance and concerns that management was not acting in the best interests of all shareholders.
We also voted against the appointment of corporate auditors at five Japanese companies. In all of these cases, the nominees were insiders whose election would mean that the majority of corporate auditors were not independent. We believe independent oversight is important in ensuring companies act in shareholders’ best interests.
The Wells Fargo example outlined in the response to question 13 illustrates how we may vote against board appointments due to ESG concerns.
18. How many companies do you engage with? What proportion of your engagements focus on environmental and social issues? What are your engagement goals? Are these goals outcome/action- based (e.g. decreases in emissions or increases in number of women on the board) or means-based (reporting on emissions or number of women on the board)?
In 2019 we had approximately 450 meetings with more than 130 companies whose shares were held in the Orbis Funds. Approximately 25% of total meetings discussed ESG factors, with environmental and social factors each being discussed in 5-10% of all meetings.
In such meetings, our primary objective is to improve our understanding of the business. We believe that responsibility for a company’s day-to-day operations rests with its executives and that we probably have limited value to add here. Still, there are times when we can contribute to a company’s deliberations over its broad strategy. When offered these opportunities, we may also share ideas that could enhance shareholder value, subject to applicable law and regulatory and market expectations. Accordingly, engagements on environmental and social issues may be either outcome- or means-based.
19. What is your policy around the escalation of engagement; how and why might this happen and what is the ultimate tool you might use (e.g. voting against board re-election, etc.)?
Our analysts are responsible for implementing our Policy on Engagement, which states our guiding principle of endavouring to act in the best interest of the Funds we manage on behalf of our clients.
We generally consider engaging with companies privately to be more constructive than public engagement. Analysts typically start by engaging privately with company management to voice any concerns and to give members of senior management the opportunity to respond and express their own views. If constructive engagement is ineffective, and an analyst continues to harbour material concerns about the strategy or governance of a company, they may consider more forceful and/or public engagements to protect the interests of our Funds.
Before undertaking more forceful and/or public engagement, analysts consider a number of factors, including whether there is a reasonable prospect of success, the time and effort required to pursue such action and whether there may be a negative impact on our firm's reputation. Analysts consult with their team leader before escalating an engagement, as well as our Legal team to ensure they appropriately take into account applicable law and local regulatory and market expectations.