We are not ESG evangelists but as fundamental long-term investors, we consider it a sensible part of company analysis to assess corporate governance, as well as the management of social and environmental issues. This forms a part of our risk assessment of business fundamentals. We believe that ignoring ESG factors may lead to an incomplete understanding of the risks to an investment case, and may consequently result in the wrong investment decisions.
Our starting point is not to exclude any particular sectors or countries. However we do avoid companies about which we have serious governance concerns, and companies in which we have concerns about business being conducted in an unethical manner, unless it is clear that such concerns have been or are being dealt with by management and any shortcomings have been addressed.
Responsible ownership is a necessary part of our fiduciary duty.
As shareholders, it is our responsibility to continue to monitor any relevant ESG issues, and to engage with management where appropriate.
In this context, ESG considerations are integrated into our investment process, at the idea generation stage and throughout the investment horizon. As long-term investors, this may span several years. This is reflected in key investment notes, where there is a dedicated section for analysing relevant ESG issues.
We utilise expert third party resources to aid our ESG assessment.
ESG incidents are identified by the investment team or by third party providers such as MSCI, ISS and Sustainalytics. Issues are assessed by the investment team with additional oversight from the OP Stewardship Committee. Managing an ESG incident is done on a case-by-case basis and will depend on the materiality of the incident. In fact, ESG-related issues often provide us with investment opportunities where we can see an improvement in such issues playing a role in the recovery in the results and perceptions of a company and its share price.
We will engage with a company's board and/or management where there are stewardship-related weaknesses and we feel that our interaction with the company may have an influence. We ordinarily hope to address our stewardship concerns through discussions that we hold with company representatives within the ordinary routine of interaction. However, we may decide to extend our engagement activity and/or escalate specific areas of concern in order to effect the change we are seeking. Such decisions are made on a case-by-case basis, influenced by factors such as our view of the materiality of the issue. The incident reports we receive from Sustainalytics and MSCI give their assessments of severity, and a confirmed violation classified as severe will be more likely to prompt engagement.
The Stewardship Committee helps determine, with the involvement of the individual member of the research team most closely involved with the particular company, the method and process of engagement to reflect concern about a particular activity or aspect of governance.
The process of escalation can include:
- withholding support or voting against management (and informing them)
- meeting/communicating with non-executive directors or the chairman
- collaborative intervention with other institutional investors
Every vote counts
It is our policy to vote all shares where we are entitled to do so, except where there are onerous restrictions - for example, shareblocking. We employ the services of ISS to manage the voting of proxies and assist our decision-making. ISS provides analysis and voting recommendations for each proposal. We vote in line with ISS recommendations unless we have a conflicting opinion about a particular issue, in which case we instruct ISS to vote as we see fit. ISS's voting policies reflect best practice within the industry and are extremely thorough. They can be found at the following link: https://www.issgovernance.com/policy-gateway/2017-policy-information/. For example, the policy applied by ISS in the UK broadly reflects guidance from the Pensions and Lifetime Savings Association (formerly known as the National Association of Pension Funds). The voting policies of ISS are generally the voting policies of Oldfield Partners and are therefore applied in all but a relatively small number of incidences. However, if there are company-specific factors which lead us to take a different view, we vote accordingly.
Oldfield Partners’ response to the UK Stewardship Code has received a Tier 1 ranking by the Financial Reporting Council, and meets the engagement policy requirements of the Shareholders’ Rights Directive II.