Controversies such as the Volkswagen AG emissions scandal, which prompted downgrades in the company’s credit rating, served as a reminder of the relevance of ESG factors to fixed income analysis. We engaged multiple times with company representatives, including the chairman and Head of Group Strategy, to call for governance reforms, stronger internal controls and a long-term emissions reduction strategy.
The experience of our corporate fixed income investment teams in engaging issuers has shown us that companies’ need for continuous refinancing via bonds has played a key role in helping expand engagement to this asset class. The desire for debt issues to be successful, we have found, is a strong reason for companies to accept engagement on ESG matters. Moreover, the impressive growth of sustainability-related bond issuances has further improved investor access to traditional bond-only issuers and, as a result, they have added ESG to their agenda.
Investors in other asset classes, such as private equity, real estate and infrastructure, have come to realise that responsible investment approaches, including engagement, are relevant to supporting long-term value creation.
Factors such as insufficient ESG-related disclosure, differences in culture and regulatory environments and high levels of government and majority shareholder ownership, have historically made it challenging for active owners to engage with companies in emerging markets countries. Recognising that these countries are highly exposed to ESG-related issues, such as population growth, income inequality, climate change, corruption and forced labour, major investors have sought to overcome obstacles to engagement.
Since 2015, we have engaged with over 700 companies across 40+ countries, helping change attitudes towards discussing ESG issues with foreign shareholders whilst calling for better ESG practices. We have engaged giants such as Samsung Electronics, Taiwan Semiconductor Manufacturing and Tencent on board composition and effectiveness, China Mobile on data privacy,
Reliance Industries on emissions management and reporting, and Itau Unibanco on management of environmental and social risks in lending transactions.
We have also engaged other actors in markets such as Hong Kong, Taiwan, Brazil, South Africa and India, including regulators and stock exchanges, to help raise the bar on shareholder rights, investor stewardship and ESG disclosure requirements. This also helps drive engagement action, including from local investors.