ESG: More active owners
SKAGEN has been incorporating environmental, social and governance (ESG) factors in its investment process for more than 15 years. In the period since we formulated our first policy in 2002, both the policy and process have transformed from simple norms-based screening into full integration around how we pick our investments.
It is only through investing sustainably that our portfolio managers are fully able to identify both the risks and opportunities arising from environmental, social and governance factors. A sustainable approach to investing is also important if we are to be good long-term stewards of our clients’ capital.
Common group policy
During 2018, SKAGEN has worked closely together with our parent company Storebrand to introduce a common group policy for sustainable investments. This work culminated in the publication of the revised policy at the start of this year.
The revised group policy combines the strengths of both Storebrand and SKAGEN. Storebrand has over 20 years of experience from sustainable analysis, integration and exclusion of companies in its investment portfolio. SKAGEN has long and good experience of active ownership through direct dialogue with companies’ management teams and boards and voting at general meetings.
As part of the work, we acknowledged that companies which incorporate sustainability in their business strategy are the financial winners in the long term – and as a result, the best companies to invest in. We believe in investing in the companies that can provide the best risk-adjusted returns for clients, without damaging the prospects of future generations.
Open about exclusions
The revised policy, like previous iterations, takes international laws, norms and conventions as its starting point. Companies will be excluded from our investment universe if breaches are considered serious or the risk of a breach re-occurring is considered high. In addition, we will also exclude investments in companies within certain single product categories or industries that are deemed unsustainable.
SKAGEN previously operated with an implicit exclusion list, but as part of the revision process, we now publish an explicit exclusion list on our website. It is important to note that exclusions are to be used as a last resort, and should only be applied where companies clearly fail to demonstrate change or improvements.
At the end of 2018, there were 171 companies on the Group exclusion list. New categories of exclusion for SKAGEN include companies which derive more than 25 percent of their revenue from the production of coal or 20 percent of their revenue from oil sands in addition to owners of palm oil producers with unsustainable business practices.
The revised policy has an even greater focus on active ownership. To that end, an observation list has been introduced enabling us to work in a more targeted manner to encourage companies to make positive change. In cases where a company is suspected to be in breach of our sustainability criteria but is working to improve, they will be put on an observation list to give us more time to fully evaluate the situation. Likewise, there may be cases where we see a company is working on corrective action, but such measures have yet to be fully implemented. We will place clear demands on the companies on the observation list and expect to see concrete improvement measures within a defined timeframe. The list of companies under observation is available on our website.
Despite these modifications, some things do not change. We continue to screen all potential holdings before any investment is made. We also continue to use our position to influence companies in the direction we believe is right. This is done by voting at shareholder meetings and through direct dialogue with the companies.
Each year we conduct a large number of meetings with both potential and existing holdings in our portfolios. The meetings typically include in-depth dialogue around environmental, social and governance issues with the companies. In 2018, SKAGEN was in direct dialogue with 17 companies on specific environmental, social and governance issues; one more than in 2017.
At SKAGEN, we generally vote at more than 95 percent of shareholder meetings of the companies where we have holdings. SKAGEN has, in line with our policy, typically voted against items related to:
- The issuance of equity without pre-emptive rights for existing shareholders
- Excessive management remuneration without links to results
- The election of board members who are not deemed sufficiently independent
Votes cast in 2018
During the year, there were a total of 223 votable shareholder meetings in the companies in our portfolios, with a total of 2 564 votable items on the agenda.
SKAGEN voted at 217 of these meetings, and on 97% of the votable items. This is a slight decrease from 98% in 2017. At the meetings where we voted, 6.4% of the votes cast were against the company's management on one or more items on the agenda. This is a slight increase from 6.1% at the end of 2017.
All our voting records, including the reasons for voting against management, can be found on this page in the solution provided by Institutional Shareholder Services (ISS), which is one of the world's leading providers of corporate governance solutions. Our unit holders can drill down and find information on a company and ballot level.