ESG Questionnaire Response - Pier 21 Asset Management Inc.

ESG Policies

1. Please provide your ESG-related policies.

Please refer to attached documents Macquarie Investment Management Europe S.A. ESG Policy and Ownership Engagement & Proxy Voting Policy

2. Are sustainable investing and ESG factors integrated into your investment process and portfolio management decisions? If yes, please provide details.

We believe responsible and sustainable investing to be a significant component in accomplishing successful outcomes in the long term. The team has formally integrated the principles of responsible investments into its investment processes, including implementing the principles set out in the ESG Policy. 

Managing risks lies at the heart of our investment philosophy. We believe that integrating ESG criteria into the investment and decision-making processes is a prerequisite for achieving positive long-term added value on equity investments. 

The team has a clear ESG philosophy: 

  • ESG can be valued and should be incorporated into investment decision
  • Over the long run the market is efficient at pricing for ESG

Managing environmental, social, and governance risks in the portfolio is an important aspect of safeguarding our client’s investments. We strive to obtain high-quality data on the risks associated with the investments. Consequently, our thorough understanding and management of risks gives rise to a strong belief that ESG considerations must be part of each and every decision surrounding an investment. 

3.a. Are you a signatory to the UNPRI?

Yes

3.b. If you are signatory to other coalitions, please list them.

Yes, we signed the Montréal Carbon Pledge in 2017. We also support the Paris Agreement and we have been signatories to UN PRI since 2010. 

3.c. Indicate any other international standards, industry guidelines, reporting frameworks, or initiatives that guide your responsible investing practices.

Through the UK Stewardship Code, we have stated that our investment process is aligned to the principles of investment decision-making, monitoring assets and service providers, engaging with companies and holding them accountable on material issues, collaborating with others, and exercising rights and responsibilities. 

Across Macquarie, we collaborate with industry, government, and other stakeholders to share knowledge and build capacity through initiatives like the new Climate Finance Leadership Initiative for which CEO Shemara Wikramanayake was appointed a founding member on 17 January 2019. Further initiatives include: 

  • Macquarie’s CEO Shemara Wikramanayake was appointed a founding Commissioner of the Global Commission on Adaptation on 16 October 2018.
  • Macquarie has been supporting the work of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) since 2018 and become a formal supporter in 2019.
  • Macquarie has been a signatory to the Carbon Disclosure Project since 2010.

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)?

The development and management of ESG policies is done by the ESG Manager with direct reporting to Management. See below roles and responsibilities.  

  • ESG Manager, Monitoring and assessing companies, developing policies and processes and reporting on activities.
  • CIO/CEO, Managing Director Integrating ESG criteria in the investment and decision-making process

ESG integration in the investment process 

Being a responsible investor, or integrating ESG factors into the investment process, helps to ensure value creation in the long term. We pride ourselves on being long-term investors, and this approach goes hand in hand with responsibility. 

As responsible investors we believe incorporating ESG factors into our investment decisions as well as our ownership rights and responsibilities, gives us a far better chance of delivering strong returns. 

As a result, we formally integrate the principles of responsible investing into our investment process and implement the principles outlined in our ESG and Active Ownership Policies. 

ESG risk management, active ownership, cooperation on and promotion of responsible investment principles, including engagements, is the basis of our work on responsible investments and includes: 

  • Incorporating ESG issues into our investment analysis and decision-making processes
  • Being active owners that incorporate ESG issues into our ownership policies and practices
  • Working with other investors to enhance ESG issues and responsible investment principles
  • Seeking disclosure on ESG issues by the entities invested in, and
  • Observation and exclusion of sectors and companies

The team apply a combination of ESG screening and integration. The Portfolio Managers consider environmental, social, and governance issues that could have a significant impact on portfolio returns and hence the outcome for clients. Each analyzed company’s ESG performance can influence whether the stock will be included in portfolios as well as the size of the allocation. The investment team works closely with the ESG Manager to implement ESG practices and apply ESG research in a suitable way. We do not differentiate between ESG and financial research, rather see it as an integrated part of each step of the investment process 

Screening and Exclusion 

As part of our commitment to ESG, we monitor sectors and companies and update our investment exclusion list on a regular basis.  

The exclusion can either be product based or conduct based as described below. 

Product based exclusion includes production of antipersonnel landmines, production of cluster munitions, production of nuclear weapons, and production of tobacco, as well as companies whose main business derives from coal or coal-based energy. 

Conduct based exclusion includes serious violation of human rights, severe environmental damage, gross corruption, serious violation of individuals’ rights in situations of war or conflict, as well as other particularly serious violations of fundamental ethical norms. 

In the management of individual client portfolios, client specific exclusion lists may be imported into our portfolio monitoring and management system, ensuring that these clients do not invest in companies excluded by their investment policy. 

Any client specific exclusion criteria is input into the portfolio management and monitoring database. The system automatically notifies the investment team in case of breaches throughout the investment life cycle. 

Fundamental Analysis 

Part of the fundamental analysis of the investment process is conducting ESG research, using ESG data from our ESG service provider. The ESG point of view is included in the investment case written by the portfolio managers. 

Portfolio Construction and Risk Monitoring 

ESG management and the portfolio managers work together, sharing information on ESG aspects through a centralized database. ESG is a fixed point on the agenda for Portfolio Management meetings. The ESG Manager is always represented at Portfolio Management meetings and will have to approve any new investment to clients’ portfolios. 

We review the ESG aspects of our investments on an ongoing basis; we monitor the ESG quality of the companies in our portfolios. Through a third-party ESG research provider, we receive ESG data that is imported into our portfolio monitoring and management system. Data includes overall ESG score, environmental score, social score, and governance score as well as data on controversies and events. The investment team uses the data to form any investment decision and the overall score, combined with controversies, might lead to a constraint in the weight the company is allowed in the portfolio. Decisions about eventual constraints are taken on regular Portfolio Management meetings. Companies capable of improving their ESG practices can be rewarded with a higher allocation in the portfolios. The team uses Sustainalytics as the external ESG/Responsible Investment related resource of qualitative data and extended ESG analysis. 

The engagements are managed in-house, coordinated by the ESG Manager. Engagements are carried out as a collaboration between the Portfolio Management department, contributing with in depth knowledge of the company and sector/industry it operates in, and the ESG manager, contributing knowledge on the topic of engagement. The ESG manager coordinates the company dialogue and reports on engagement objectives and results. 

Collaborative engagements 

When collaborating with other investors, our combined holding size gives us access to board members, senior management, and a range of specialists of the companies invested in. As signatories to the PRI, we collaborate with the ESG Engagement team of the PRI to identify key environmental, social, and governance issues in the market and to address them. 
 

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.

Macquarie Investment Management Europe S.A. reports quarterly to clients on:

  • all Proxy Voting
  • ESG company score
  • all Engagement with firms

Macquarie, both at a corporate and investment management level, has long had a focus on the potential impacts of ESG and sustainability. ESG factors are integrated into Macquarie’s diverse business activities, using a well-established framework of ESG-related policies and practices, including corporate governance and environmental risk policies. Macquarie is currently a signatory to the Carbon Disclosure Project and report publicly on climate change risks and opportunities via the Carbon Disclosure Project website as well as in Macquarie’s Annual Financial Report. Macquarie reports annually on its ESG approach and performance as well as investments and products in its Annual Financial Report using the Global Reporting Initiative as a guiding framework. Please refer to the document Macquarie Group ESG 2020

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?

We do ongoing assessment of our ESG process, especially in our continuous dialogue with companies. As active managers, we have an approach which goes beyond seeing ESG as managing risk. Our approach integrates ESG and financial aspects, emphasises where ESG factors affect the financial statement, both as a positive impact and a potential cost. To do this exercise we need to follow up by active shareholder engagements and interaction with companies to understand how and to encourage companies to improve shareholder and long-term portfolio returns and to drive change. We believe in nudging and keeping an open dialogue between management and investors, especially regarding ESG issues and in connection with voting at shareholder’s meetings. In June 2020, one of the portfolio companies confirmed to us, that they will no longer seek contracts within a business area, that has been challenging from an ESG standpoint. 

To assess the effectiveness of ESG is easier said than done. The key challenge is to define and measure outcomes, and to isolate the impact of pure ESG from other factors, as they potentially are interlinked, which is not always possible. Our approach also has the implication that ESG issues in investment and analysis decisions are difficult to disregard. 

Climate

7. Describe how you identify, assess, and manage climate-related risks.

As investment managers, we have signed the Montreal Carbon Pledge. We support the Paris Agreement and will work to: 

  • Further develop our capacity to assess the risks and opportunities that arise from climate change and integrate, where relevant, this assessment into our decision making process.
  • Engage with portfolio companies to make sure they are aware of and are disclosing the risks of climate change  and are capitalizing on the opportunities presented by climate change.

8. Describe the climate-related risks and opportunities you have identified over the short, medium, and long term.

In accordance with our long-term perspective to protect our clients’ holdings and portfolio return, we recognize that climate change is a growing risk that needs collaborative global action. We engage with portfolio companies to make sure they are aware of and disclose the risks of climate change, and are capitalizing on the opportunities presented by climate change. 
Through one of our holdings, French industrial gas producer, Air Liquide, we are invested in the future growth of the use of industrial gases to fight climate change. Industrial gases are essential in almost every part of modern society and what we consume, from energy and food to electronic gadgets, and in-home health care. Air Liquide is a key player of the climate and the energy transition with oxygen, hydrogen and carbon capture, which might contribute to saving humanity also in a long-term perspective, and in our opinion, represents a great investment opportunity. 

Another portfolio company, Danone, will soon become the first French company to adopt a legal framework to focus businesses on their communities, the environment and other stakeholders. 

9. Describe the resilience of your investment strategy, taking into consideration different climate- related scenarios.

Please refer to question #7

10. Do you track the carbon footprint of portfolio holdings?

Yes

If yes, please describe the methodology and metrics used, and whether you have a set target for reducing the portfolio's footprint.

The measurements are based on direct GHG emissions from sources owned by the company and indirect GHG emissions from carbon emissions.  

Measurements 

We report on Carbon Intensity (tons CO2/$M sales) and Weighted Average Carbon Intensity (tons CO2/$M sales, by portfolio weight); the metric recommended by the Task Force on Climate-Related Financial Disclosure (TCFD). In addition, we report Portfolio Carbon Footprint (tons CO2/$M invested). 

Results 

Our investment team reviews the results on portfolio and company level to better understand the carbon risks and to inform investment decisions.  

11. What are your firm's emissions? Please demonstrate how/whether you are taking steps to reduce these emissions.

Please refer to attached documents Macquarie Climate Change Approach and Macquarie Carbon and Energy Data

Diversity

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?

Please refer to attached documents Macquarie Commitment to Diversity and Macquarie Workplace Gender Equality Agency Compliance Report and more detailed information on the following homepages: 

https://www.macquarie.com/au/en/about/diversity-and-inclusion.html

https://www.macquarie.com/au/en/about/company/executive-committee.html

Proxy Voting

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?

For every meeting, the recommendations of the Proxy Voting Service Provider is reviewed. As the recommendation is based on the guidelines of the Fund or individual clients, the recommendations are most often followed. Situations have however occurred, where the review has led the team to another conclusion and the recommendations were not followed, i.e. supporting shareholder proposals of fellow PRI signatories. 

During first half of 2020 we have voted all ballots at all meetings. We voted at 44 meetings and at four Meetings we voted against management. Voting records are part of the monthly reporting. 

14. What proportion of all independent ESG shareholder resolutions do you support?

When engaging with companies, we follow the recommendations of the PRI’s introductory guide to collaborative engagements: 
If dialogue does not lead to a satisfactory response, the investors can consider taking further measures. Initially this can be articulated subtly, but if unsuccessful, it can be done more overtly to push companies to consider the ESG issues under discussion. Beginning with smaller steps, there are various tactics that can be considered: 

  • sending reminders
  • being increasingly assertive
  • proxy voting
  • asking a question at the AGM
  • filing a shareholders resolution

In an escalation process, we would first and foremost take actions through proxy voting and by being increasingly assertive in our direct dialogue with the company invested in, including sending reminders. If proven unsuccessful, a further option would be filing shareholder resolutions or asking a question at the AGM. At this moment, escalation has not yet been necessary.  

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 2020, we have voted against the remuneration of one board member as it significantly differed from other non-executive board chairs on the market, even following a 30% reduction in light of the COVID-19 pandemic. This matter was followed up by a letter to the board and a discussion with another member of the board. 

We acknowledge the need to focus on governance and the rising inequality, as the ratio of renumeration for a CEO compared to an employee has increased on average to 300 to 1 from 30 to 1 during the past decades in certain markets. 

16. Have you ever co-filed an ESG-related shareholder resolution? If so, how many and with what frequency?

If dialogue is considered unsuccessful and voting against management did not further the cause, we would consider filing a shareholder resolution, but have not filed any at this moment. Please see further in answer 14 here above

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, on diversity, gender and independence. 

Scholarly research suggests that companies perform better when they are led by a group of diverse board members who complement each other. We hence believe in leadership that is varied in every way - in gender, race, economic background and ideology. Catalyst, a research organization, found that the companies with high female board representation tend to have higher return on sales, as well as higher return on invested capital and higher return on equity than companies with the least women. Likewise, McKinsey & Company found that the international companies with more women on their corporate boards “far outperformed the average company in return on equity and other measure”. 

Another reason companies with senior female leadership may thrive might have little to do with gender. The promotion of women may just be a proxy for those companies that are most open-minded and forward-looking, and those perhaps are the qualities that are mainly driving profits. 

In a conference call in May 2020, one of our portfolio companies, Nestlé, the Swiss packaged food company, which manufactures and markets milk, chocolate, confectionary, bottled water, coffee among other consumer products, emphasised to us that they spend a lot of effort on gender balance. Historically, Nestlé was the first Swiss company with four women on the board. Today, Nestlé's focus is on cognitive diversity, i.e. the inclusion of people who have different ways of thinking, different viewpoints and different skill sets in a team or business group. Regional diversity and nationality is also an important factor, as well as representation from all angles of society. Considering this has made a huge difference for the company, compared to ten years ago, when it comes to the discussion culture, and asking difficult questions – the entire board culture has changed and female representation has made a difference and has progressed into a conscious decision to bring in people who are more outspoken. 

Engagement

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)?

100%. We engage with every company, we have invested in, on a broad range of issues, goals outcome, action-based and means-based. We engage with them individually, in writing and/or conference calls with both management and/or board members. 

On gender diversity, we believe that adding the female perspective is of importance for any company’s operation and success of the Board of Directors – as well as the Executive Board. There is strong evidence that the inclusion of women in senior positions is linked to better results, which support the argument for increased diversity. An important step in achieving more diversity is the nomination of female directors. 

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.)?

As long-term investors, the firm engages in dialogue with companies. We believe that our long-term success and contribution to sustainable development depend on our active monitoring of the companies invested in. 

On behalf of our clients, we have an interest in understanding the corporate governance and sustainability framework of the companies in addition to their operation and strategy. We believe the companies’ boards and management should address relevant environmental, social, and governance issues and report on this to their shareholders. 

When collaborating with other investors, our combined holding size gives us access to board members, senior management, and a range of specialists of the companies invested in. 

As signatories to the PRI, we collaborate with the ESG Engagement team of the PRI to identify key environmental, social, and governance issues in the market - and to address them. 

Signatories have been consulted on priority ESG issues to engage on, which include: 

  • Environmental issues: climate change, water risk, fracking, deforestation
  • Social issues: labour standards, human rights, inequality, gender diversity
  • Governance: tax, anti-corruption, proxy voting, board accountability, executive pay

We look to engage on all topics and with all companies relevant to our portfolios. The identified key issues are subject to revision and is a result of dialogue between the ESG Engagement Team and the Investors/Signatories. 

When engaging with companies, we seek to improve certain standards and practices. Most sectors and companies invested in continue to progress and undergo restructuring and adjustment, and this extends to the corporate governance standards expected by the shareholders. 

For each engagement topic, we set up measurable goals for improvements. The engagements may extend over several years and involve a range of companies. 

We record company dialogue according to the goals set out for the engagement. We document the engagement objectives and goals prior to initiating an activity and store and measure any progress in our proprietary company database. 

Based on the work accomplished through collaborating with other investors, we evaluate whether the results from the engagement meet the expectations and goals set out at the beginning and whether further actions are needed, e.g. proxy voting.  
 

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