ESG Integration
Our truly strategic time horizon means we must be continually alert to all relevant long-term issues, with the objective of pre-empting risk and enhancing returns. Considering all ESG factors which might affect our companies has therefore always been central to our investment approach.
We have historically found that ‘exceptional’ companies tend to exhibit characteristics associated with good corporate governance and responsible business practices. Furthermore, we believe that companies which observe such standards, and that are serious in their intention of addressing environmental and social factors, will not only become more durable, but will likely prove to be superior investments over time.
To that end our initial analysis and ongoing company engagement strategy seeks to incorporate all sustainability factors that we believe will affect the company’s ability to deliver long-term value to shareholders. This work is catalogued in a proprietary database of risk factors in order to centralise and codify our team’s views, as well as to prioritize our ongoing research and engagement work. We cross-reference this work with the SASB Materiality Map ©; however, the extensive research conducted to identify the ESG risks posed at a stock level is our own.
Our experience and research tell us that “exceptional” companies are found only in a limited number of sectors, which means that many sectors are never represented in our portfolios.
For example, as a product of our investment philosophy, we do not invest in the following industries:
- capital intensive industries (energy, commodities or mining) or any companies involved in the extraction and production of coal, oil or natural gas; and
- industries that we judge to be sufficiently detrimental to society that they may be exposed to burdensome regulation or litigation that could impinge on financial returns (e.g. tobacco, gambling or arms manufacturers).
Similarly, our investment approach has steered us to invest in a number of companies that play an important positive social or environmental role. We believe that such positive benefits for society should be consistent with our aim to generate competitive long-term returns, thus helping us meet our clients’ investment objectives. Furthermore, through our engagement strategy, we increasingly seek to encourage and support our companies to meet their own commitments (be those aligned with the UN Sustainable Development Goals, climate goals or other similar initiatives), with the aim of improving standards and enhancing returns.
We are committed to improving the way in which we engage with companies so that we understand, and where necessary influence, how our investee companies are adapting their strategies to deal with the tangible risks and opportunities presented by climate change.
From a portfolio perspective, evidently the transition to a low-carbon economy will affect some sectors more than others and fortunately these are typically the sectors that Lindsell Train avoids, most notably capital intensive industries and extractives. That said, all companies are affected to a greater or lesser extent by climate change and we must ensure that we are able to identify and monitor the risks (and opportunities) of the companies in which we are invested.
Lindsell Train are signatories to The Net Zero Asset Managers Inititative (NZAM).
Stewardship
To date, our stewardship activities have proved effective and we have been able to deliver good investment returns for our clients, a commitment to investing responsibly and also, we hope, the level of service that our clients deserve and have come to expect. However, like our expectations of the companies in which we invest, our clients’ expectations of us are constantly evolving and we will continue to strive to meet them.
Engaging with and monitoring investee companies on matters relating to stewardship has always been an essential element of our investment strategy.
When we meet with company management we will engage with them on all factors that we believe will affect the company’s ability to deliver long term sustainable value to shareholders. Such factors include but are not limited to; corporate strategy, operating performance, competitive positioning, governance, environmental factors (including climate change), social factors, remuneration, reputation and litigation risks, deployment of capital and regulation.
Our long-term approach generally leads us to be supportive of company management; however, where we disagree with a company’s actions, we will try to influence management on specific matters or policies if we believe it is in the best interests of our clients. Constructive dialogue has more often than not resulted in satisfactory outcomes, thus limiting the need for escalation. However, where this is not the case, we will consider escalating our engagement and stewardship activities.
The primary voting policy of Lindsell Train is to protect or enhance the economic value of its investments on behalf of its clients. Lindsell Train’s portfolio managers are responsible for proxy voting decisions and it is our policy to exercise all voting rights which have been delegated to us by our clients. Proxy voting decisions are the result of careful judgement to ensure the best possible outcome to generate long-term shareholder value.
Lindsell Train has appointed Glass Lewis to aid the administration of proxy voting and provide additional support in this area. For example, Lindsell Train can leverage Glass Lewis research (produced in partnership with Sustainalytics) and also their voting guidance. However, the portfolio managers maintain decision making responsibility based on their detailed knowledge of the investee companies. We believe retaining ownership over the exercise of our votes forms an important part of our investment process and proactive company engagement strategy.