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 encourage greater ESG transparency, as this is vital for us as investors to appreciate the risks and opportunities faced by each company. In addition we see an opportunity to provide feedback to companies regarding the changing expectations of investors. We find that there is an opaqueness to agency ratings which fails to encourage progress at companies. As we look forward, we’ll be using our involvement with IIGCC and CDP to encourage companies to report data in line with TCFD (Task Force on Climate-related Financial Disclosures) recommendations.
ESG Risks and Issues
If an area of concern is raised during an ESG evaluation, 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. Often these are initiated with the executive team directly.
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 how we can most fulfill 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.
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.