Doing good while doing well:

Our ESG journey

July 8, 2021

Fighting climate change by reducing greenhouse gases released in the atmosphere, ensuring a fairer and more sustainable sharing of wealth, and encouraging openness and transparency are some of the environmental, social and governance issues that get a lot of attention these days. In the investment world, these are commonly called ESG considerations.

Such considerations have been at the core of our values since 1987 as we meant to do good while doing well from the start. Accordingly, ESG integration has always been an important pillar of our investment approach and we are committed to be a leader in ESG research. That is why we scrutinize ESG factors when analyzing potential investments, and on an ongoing basis for existing investments.

We have undertaken many ESG initiatives without much fanfare over the years and thought it was time to introduce you to the most important ones. We hope to show where we have come from and, more importantly, where we are going to.

A history of responsible investing

Our history of responsible investing stems from the desire to protect the planet, to do our part in resolving social issues, and to promote equity by advocating for good governance. While such values appear to conflict with the search for good returns, portfolios with high ESG scores often outperform those with lower scores. This demonstrates that it is possible to thrive responsibly.

Letko Brosseau ruled out investments in certain industries from the outset. These industries, such as tobacco and gambling, either presented abnormal risks or benefited some stakeholders at the expense of others. Thermal coal mining was later added to the excluded list.

This negative screening approach was complemented with a strong engagement agenda going beyond financial criteria. Why? Because investor engagement with companies helps move important ESG issues forward. We thus maintain an ongoing constructive dialogue with companies in which we invest, voicing concerns and leveraging proxy voting to influence outcomes when dialogue fails.

Our values have not changed. We still strive to do good while doing well. What has changed is public awareness of environmental, social and governance considerations. This has led the investment industry, intergovernmental organizations and civil society to launch a number of joint initiatives that have evolved the ESG landscape.

We have stayed tuned and have refined our approach to include international best practices in this area as we continue to progress in our ESG journey.

Our recent key ESG initiatives

  • Since 2018, we compile and publish annual ESG Highlights reports. These summarize our approach and initiatives, then present our ESG research and engagement highlights. Our 2020 ESG engagement report is available on our website.
  • In 2019, we signed the United Nations-supported Principles for Responsible Investment (PRI). The PRI sets out six voluntary and aspirational investment principles that offer various possible actions for incorporating ESG issues into investment practices. In line with PRI recommendations, our ESG and proxy voting policies are posted on our website.
  • Also in 2019, we established an internal Climate Change Committee to: (1) identify investment risks and opportunities arising from climate change, both in our portfolios and more broadly in capital markets; and (2) conduct climate change scenario analysis, beginning with potential global physical changes and how these, in-turn, impact the macroeconomic environment, policy and regulation, sector and industry dynamics, and individual company performance.
  • We encourage our investment team members to gain in-depth knowledge on how to integrate sustainability information into investment analysis by obtaining the Sustainability Accounting Standards Board (SASB) Fundamentals of Sustainability Accounting (FSA) Credential. To qualify, candidates must complete two exams. Level I focuses on principles and practices and Level II, on application and analysis. In 2020, 14 members of our investment team qualified for the FSA Credential, and 19 (79%) are now FSA accredited.
  • In 2020, we built an internal ESG engagement database to better monitor, document and track engagement results, which in turn improves outcomes.
  • In early 2021, we created a dedicated sustainable investing section on our website to inform investors of the firm’s various initiatives.
  • In 2021, we subscribed to the SASB[1] Materiality Map® to guide the treatment of the most important ESG factors in various sectors. The SASB, an independent, standard-setting organization, published guidelines for the reporting of standardized, meaningful environmental and social-related information in November 2018. On June 9, 2021, the SASB announced its upcoming merger with the International Integrated Reporting Council (IIRC) to form the Value Reporting Foundation (VRF).
  • Our internal Industry Committee, established in April 2021, now determines firm-level engagement themes that guide our ongoing dialogue with investee and prospect companies.
  • In May 2021, we signed a licensing agreement with Sustainalytics to access carbon footprint data from more than 14,000 companies We are now able to measure the carbon intensity of our portfolios and, more importantly, to analyze the biggest opportunities for improvement over the next few years.
  • In June 2021, we established an ESG Engagement Policy that formalizes our initiatives in this area and our documentation method.

Doing good while doing well

Thirty-three years down the road, we still firmly believe that companies with sound business practices—including strong corporate governance and responsible management of material environmental and social issues—have better success and deliver stronger financial performance over time. As a result, responsible investing is firmly integrated into our investment approach, and we are committed to continuous improvement in ESG research for our clients and society at large.

To learn more about our ESG journey, visit the sustainable investing section of our website.

[1] Letko Brosseau licenses and applies the SASB Materiality Map® Disclosure Topics and Accounting Metrics in its work.

 


 

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