With several QUAERO CAPITAL investment strategies focusing on small cap companies, we can often be one of the largest investors in companies held in our portfolios. The portfolio managers have long been constructively engaging with companies to work towards the adoption of good governance and sustainable strategies.
Our approach (Listed Equities)
We connect this dialogue with our ESG analysis in a structured way and we log these interactions to offer greater transparency to our clients. Going forward we will constructively engage with companies held in other portfolios.
When we identify an area of concern, a ‘red flag’, we consider starting a dialogue with the company, either through meetings with the company’s management or through communication channels such as IR. These topics of engagement usually cover two areas: ESG transparency and ESG risks and issues.
We want to push ESG transparency more going forward, as we discover that many companies’ management teams aren’t aware how investors are evaluating their sustainability. In this regard, we find that there’s an opaqueness to agency ratings, and most of the time if there is a rating for a small cap company, it’s far off the mark. Our role is to help companiesto understand what we as responsible investors want to see and hear from them. As we look forward, we’ll be using our involvement with IIGCC to encourage companies to report data in line with TCFD (Task Force on Climate-related Financial Disclosures) recommendations.
ESG Risks and Issues
During our ESG evaluation of a company, if we identify an area of concern, either due to lack of transparency or due to risks around strategy, we raise it with the company in order to better understand the issue and to encourage responsible practice. We either wait until our next meeting with the management, or we organise a conference call or start an email exchange. Usually we’re able to gain comfort through the discussion with the company, either related to their strategy of managing the risk, or simply through better transparency about initiatives that are underway.
We log each interaction and identify where follow-up meetings or calls would be beneficial. If commitments to increase transparency are made, or strategies in response to a controversy are discussed, we will maintain notes and follow up with the company’s management at our next meeting.
We believe this is the area we can most fulfil our obligations and commitments as responsible investors. If a CEO sits through 10 meetings with investors, and the majority of these investors raise questions regarding their sustainability strategy, we are confident that over time this feedback loop will affect corporate strategy.
As often one of their largest investors, we’re committed to providing that feedback and raising those issues when we identify them. We see active ownership as a powerful tool for change, not just to encourage better corporate behaviour but as a consequence to drive better long-term financial returns for our investors.