Where to focus investment engagement in 2019

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Business People Handshake Greeting Deal Concept © rawpixel /123RF Stock PhotosThe name of the game is engagement, according to a new report by NEI Investments.

In 2018, engagement with investee companies on environmental, social and governance factors was a major undertaking for the firm. It actively engaged with 118 companies on these topics, comprising 40 per cent of its overall equity holdings.

“We are committed to helping our clients grow wealth while advancing the ESG performance of companies wherever we invest,” said Fred Pinto, senior vice-president and head of asset management at NEI Investments, in a press release. “In our view, this year’s program focuses on the three most pressing areas for strategic and tactical dialogue in terms of emerging risks and opportunities.”

While not all its interactions with companies were successful, the firm noted the majority (70 per cent) did respond to its engagement approaches and 64 per cent made progress on or achieved the objective outlined by the firm. In addition, NEI voted on 9,845 proxy items based on its specific ESG-focused voting guidelines.

During that time, several key themes emerged. The transition to a lower carbon energy sector was an important area of focus. In 2018, 60 companies came under scrutiny by the firm, including discussions with oil and gas companies on how they planned to make the transition. NEI emphasized Suncor Energy’s actions, noting the Calgary-based company put out a resiliency report demonstrating some progress and set up a goal of reducing emissions intensity by 30 per cent by 2030.Another new report, by Willis Towers Watson, also examined the traditional energy sector, noting it should be prepared for major disruption.

“The risks facing the power and renewables sector are wide-ranging and ever-changing,” said Graham Knight, head of natural resources GB at Willis Towers Watson, in a press release. “As the effects of climate change and geopolitical risk continue to create uncertainty and remain at the top of boardroom agendas, the rapid innovations in technology present both threats and opportunities.”

Sustainlytics’ latest report on systemic risks also focused on oil and gas companies as a sector where investors should expect serious shifts this year. “In 2019, we see a fossil fuel glut, a growing recognition that climate change is threatening conventional oil and gas firms, regulations in certain markets and mainstream investor interest in mitigating carbon risk as the primary drivers of increased attention on carbon stranded asset risk in the integrated oil and gas subindustry,” the report noted.Returning to the NEI report, the firm noted that among the many United Nation’s sustainable development goals, it has chosen to focus on a specific five between 2019 and 2030. These include climate action, good health and well-being, reduced inequalities, responsible consumption and production and peace, justice and strong institutions.

In addition to the priority places on these areas, NEI is zeroing in on specific companies for the year. Its list is focused on two types of dialogue: strategic conversation with sector leaders identified by the firm as capable of major breakthrough on an issue, or sector laggards with catching up to do, as well as tactical discussions in response to emerging risks and opportunities.

Among the 30 companies on NEI’s list, the firm is targeting Nestlé, PepsiCo, Procter & Gamble and Unilever on finding solutions for plastic waste entering the world’s oceans. As major consumer brands, packaging from their manufactured products is a top source of this waste and improved waste management infrastructure is required, noted the report.

This article originally appeared on CIR’s companion site, Benefitscanada.com. Read the full story here.

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